If 

1 

p 

1 

!' 
1 

i 

'  '     1 

tl!! 

Ill 

iiii 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

RIVERSIDE 


\y)-<2^ 


fr  -    ^1 


-iZ^^ 


f^a  n. 


Ci'OSjL 


Digitized  by  tine  Internet  Arciiive 

in  2007  witin  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/flowofvalueOOmcphiala 


THE 
FLOW  OF  VALUE 


THE 
FLOW  OF  VALUE 


BY 

LOGAN  GRANT  McPHERSON 

Author  of  "How  thk  World  Makes  its  Livimo,"  etc. 


NEW  YORK 

THE  CENTURY  CO. 

1919 


1-.., 


Copyright,  1919,  by 
The  Centuby  Ck). 


Published,  October,  1919 


PREFACE 

The  World  War  has  given  impetus  to  the  con- 
viction, the  growth  of  generations,  that  human  en- 
ergy ought  to  be  directed  to  the  service  of  human 
kind.  The  conversion  of  the  combatant  nations 
into  unified  organizations  for  the  conduct  of  war 
has  tended  toward  an  unprecedented  coordination 
of  the  activities  of  their  peoples.  This  gives  force 
to  the  conclusion  that  there  ought  to  be  the  coor- 
dination of  their  activities  for  the  general  good, 
not  only  in  time  of  war  but  in  time  of  peace. 

Although  there  is  wide  concurrence  in  the  opin- 
ion that  there  will  never  be  a  reversion  to  the  old 
conditions,  there  is  lack  of  concurrence  as  to  the 
changes  that  ought  to  be  made  in  institutions  and 
practices  of  the  past.  There  are  tliose  who  believe 
that  there  must  be  a  radical  transformation: 
others  hold  that  modification  of  the  status  at- 
tained through  the  age-long  development  of 
civilization  ought  not  to  be  abrupt. 

Of  foremost  importance  will  be  the  solution  of 
the  problems  concerning  the  determination  of 
wages,  of  prices,  and  the  acquisition  and  tenure  of 
property.  There  can  not  be  adequate  grasp  of  all 
that  will  need  to  be  taken  into  account  without  com- 
prehension of  the  effect  of  procedure  that  has  had 

the  sanction  of  custom  and  of  law. 

vii 


viii  PREFACE 

In  the  following  pages  is  an  attempt  to  set 
forth  in  general  and  in  broad  outlines  the  sequence 
of  cause  and  effect  in  the  determination  of  prices. 
There  is  no  endeavor  to  trace  this  sequence  in  its 
relation  to  any  specified  price  at  any  specified 
time  or  place.  This  would  compel  an  immediate 
study  of  the  particular  incidence  of  the  particular 
forces  involved. 

The  meteorologist  knows  that  the  frost  upon  the 
window-pane  is  due  to  the  temperature  without 
and  that  within,  to  the  thickness  and  texture  of 
the  glass,  the  character  of  its  surface,  the  degree 
of  moisture  in  the  air.  If  he  could  in  any  given 
case  measure  each  of  these  factors  and  the  effect 
of  each  in  their  interrelation,  he  might  be  enabled 
to  draw  in  simple  outline  the  pattern  that  would 
be  formed  by  their  reaction  and  interaction,  pro- 
vided the  glass  were  clean.  But  a  window-pane, 
even  in  a  well-ordered  household,  is  seldom,  if 
ever,  absolutely  clean.  Attached  to  it  are  nearly 
always  extraneous  particles,  watery,  oily,  or 
dusty,  which  have  a  marked  influence  upon,  or  may 
even  dominate,  the  hoary  figuration.  So  also, 
while  cognizance  of  the  primary  factors  may  make 
it  possible  to  denote  the  course  of  prices,  there 
can  not,  without  other  data,  be  ascertainment  of 
just  why  there  is  a  particular  price  for  a  particu- 
lar thing  at  a  given  time  and  place. 

The  overwhelming  importance  of  the  problem 
makes  it  imperative  to  surmount  the  diflGiculties 


PREFACE  ix 

that  beset  its  solution.  As  the  patient  investiga- 
tion of  phenomena  of  animate  and  inanimate  na- 
ture in  mass  and  in  detail  by  astronomers,  geolo- 
gists, physicists,  chemists,  and  biologists  has  given 
rise  to  conclusions  of  vast  benefit,  so  also  must 
there  be  persevering  study  by  economists  of  all 
that  pertains  to  price.  They  may  discover  and 
isolate  many  a  malignant  sociological  or  psycho- 
logical bacillus  and  thus  be  led  to  find  and  apply 
an  antitoxin. 

In  the  practice  of  medicine  no  more  than  a  few 
decades  ago  it  was  chiefly  through  long  experience 
that  a  physician  acquired  the  insight  which  en- 
abled him  to  diagnose  a  disease,  and  the  skill  which 
enabled  him  to  combat  its  progress.  Now  the  stu- 
dent, grounded  in  anatomy,  physiology,  and  or- 
ganic chemistry,  gains  in  hospital  and  clinic  that 
acquaintance  with  the  various  stages  of  every  mal- 
ady which  qualifies  him,  in  practice  in  the  outer 
world,  to  detect  the  nature  of  a  disease,  the  degree 
of  its  advancement,  and  to  apply  the  remedy — 
in  the  extreme,  to  resort  to  surgery.  So  also  it 
may  come  about  that  economists,  trained  in  the 
fundamentals  of  their  science,  cognizant  of  re- 
search into  economic  phenomena,  with  perception 
developed  by  the  study  of  the  actual  course  of 
business,  may,  when  they  take  part  in  the  affairs 
of  the  world,  be  enabled  promptly  to  recognize  a 
pathological  condition  of  industry  or  commerce, 
to  decide  upon  the  course  requisite  to  overcome 


X  PREFACE 

the  plethora  of  overproduction  and  its  ensuing  un- 
employment, or  the  anemia  of  underproduction 
and  the  consequent  deprivation,  to  dissolve  the 
irritation  that  may  culminate  in  cancerous  growth, 
and  thus  to  reduce  to  a  minimum  the  resort  to  the 
excision  of  bankruptcy  and  foreclosure. 

Moreover,  the  time  is  inevitably  approaching 
when  the  most  complete  information  as  to  the  ef- 
fect upon  the  general  welfare  of  all  of  the  ramifi- 
cations of  any  economic  juncture  will  be  indis- 
pensable as  an  aid  to  the  judgment  of  any  tribunal 
charged  with  the  settlement  of  economic  dissen- 
sion. In  the  past  the  procedure  of  such  a  tribunal 
has  been  very  much  like  that  of  a  court  of  law. 
Disputants  have  been  heard,  and  decision  often 
has  been  in  favor  of  the  side  making  the  more  skil- 
ful and  forceful  presentation.  It  may  be,  how- 
ever, that  compliance  with  the  petition  of  one  who 
feels  that  he  suffers  unjustly  may  militate  against 
the  weal  of  many  others  not  in  evidence,  or  who 
indeed  may  not  even  be  aware  of  the  bearing  of 
the  dispute  upon  their  activities  or  upon  the  re- 
ward for  their  activities.  Legislators  also  have 
often  made  enactment  in  behalf  of  those  who  have 
raised  the  loudest  clamor.  Then  when  the  enact- 
ment has  worked  to  the  disadvantage  of  others, 
they  in  turn  have  engaged  in  like  vociferation,  and 
it  has  been  modified  in  their  favor.  In  the  long 
reach  of  time  such  pulling  and  tugging  back  and 
forth  now  and  then  may  result  in  an  equitable 


PREFACE  xi 

equilibrium  that  could  the  better  have  been  at- 
tained and  adjusted  to  changing  conditions  were 
there  continuing  complete  consideration,  not  only 
of  contention  but  of  the  general  welfare. 

It  must  be  said  that  the  analysis  in  these  pages 
is,  in  a  way,  a  continuation  of  the  presentation  em- 
bodied in  a  previous  volume  entitled  *'How  The 
World  Makes  Its  Living."  It  is  the  writer's  de- 
sire, however,  that  each  exposition  be  complete  in 
itself.  To  this  end  there  is  here  and  there  in  this 
book  a  limited  and  condensed  restatement  of  cer- 
tain of  the  premises  and  deductions  of  the  earlier 
volume.  Certain  subjects  there  treated,  as,  for 
example,  speculation,  crises  and  panics,  inherit- 
ance, and  charity,  are  not  here  discussed.  **How 
The  World  Makes  Its  Living"  presents  the  evo- 
lution of  the  entire  economic  structure ; ' '  The  Flow 
of  Value,"  the  sequence  of  cause  and  effect  in 
determining  prices,  wages,  and  profit. 

It  is  further  to  be  stated  that  this  discussion  is 
of  the  physiology  of  the  economic  structure,  with 
little  reference  to  its  pathology.  Definite  knowl- 
edge of  the  physiology  of  the  human  body  led  to 
the  perception  that  many  manifestations  long  re- 
garded as  pathological  are  indications  of  healthy 
development.  So  also  it  may  be  with  the  eco- 
nomic structure,  as  we  attain  a  more  thorough 
comprehension  of  the  significance  of  its  working. 


ACKNOWLEDGMENT 

It  was  the  desire  of  the  author  that  the  manu- 
script of  this  book  be  scrutinized  from  the  stand- 
point of  the  exposition  in  general,  from  the  stand- 
points of  the  professional  teacher  of  economics, 
of  the  practical  philosopher  of  business,  and  of 
the  practical  philosopher  of  finance.  This  desire 
has  been  kindly  and  painstakingly  fulfilled  by 
Fabian  Franklin,  editor  of  the  **  Review  " ;  by  Wal- 
ter W.  McLaren,  professor  of  Economics  in  Wil- 
liams College;  by  Leonor  F.  Loree,  president  of 
the  Delaware  and  Hudson  Company,  whose  ines- 
timable offices  in  manifold  ways  have  forwarded 
the  preparation  of  this  volume;  and  by  Paul  M. 
Warburg,  formerly  vice-governor  of  the  Federal 
Reserve  Board.  Byron  J.  Rees,  professor  of 
English  in  Williams  College,  has  obligingly  read 
the  proof.  While  each  of  these  gentlemen  has 
made  suggestions  toward  the  improvement  of  the 
discussion  of  which  the  author  has  gratefully 
availed  himself,  it  is  explicitly  to  be  understood 
that  no  one  of  them  is  to  be  held  responsible  for, 
or  is  committed  to  concurrence  in,  any  opinion  ex- 
pressed in  these  pages. 

The  author  thanks  the  faculty  of  Williams  Col- 
lege and  the  residents  of  Williamstown  for  many 
courtesies  extended  to  him  during  his  sojourn  in 
that  charming  village  where  this  book  was  written. 


CONTENTS 

HAPTER  PAGE 

Preface '   .     .         .     .  v 

I    Human  Effort  and  Human  Wants  .     .  3 
II    Property  in   Matter  and  Property  in 

Force 18 

III  Utility  and  Utilities 23 

IV  The  Exchange  of  Utilities  and  the  Unit 

OF  Exchange 34 

V    A  Hypothetical  Development  op  Prices 
FOR    Foodstuffs — the    Emergence    op 

Profit 52 

VI  A  Hypothetical  Development  of  Prices 
FOR  the  Products  of  Artisans,  for 
Substance  and  of  Wages     ....     64 

VII  A  Hypothetical  Development  of  Prices 
for  Sources  of  Substance  and  Instru- 
ments of  Production 84 

VIII    A   Continuation   of  the  Hypothetical 

Development  of  Prices  and  Profit     .     93 
IX    The  Effect  of  the  Introduction  and 
Use   of   Machines   Upon   Prices   and 
Profit 114 

X    The  Actual  Development  of  Industry 

AND  Commerce  in  the  United  States  .   136 
XI     The  Relativity  of  Human  Effort  and 

THE  Relativity  of  Human  Wants  .     .  143 

XII    The  Relativity  of  Prices 154 

XIII    The  Relativity  of  Profit 175 

XIV    The  Interrelations  op  Effort,  Prices, 

and  Profit 188 

XV    The  Flow  op  Debits  and  Credits  .     .     .  213 
XVI    Value 232 


CONTENTS 

CHAPTER  PAGE 

XVII    Capital 252 

XVIII     The  Ultimate  Units  of  Production  and 

Consumption 266 

XIX    A  Summary,  Restatement  and  Further 

Analysis 286 

Production,   Buying,   and   Selling  by 

Individuals 286 

Production  by  Organizations  of  Em- 
ployer and  Employees     ....  299 
Man-hours  and  Want-units       .      .      .  303 
Rising  and  Falling  Prices  ....  311 
The  Distinction  Between  Capital  and 

Labor 314 

The  Securing  of  Profit 318 

Greater  Reward  for  Greater  Service 

Entails  No  Deprivation  ....  324 
Value  Depends  Upon  Return  .  .  .  329 
Living  Upon  Rent,  Interest,  or  Profit  334 
Man-hours  for  Man-hours  ....  338 
The  True  Significance  of  the  Ratio  of 

Exchange 345 

The  Synthesis  of  Production    .      .      .  352 

Waiting  for  Payment 359 

The  Retention  of  Credits     .      .      .      .364 
Variation  in  Purchasing  Power  of  the 

Dollar 368 

XX    Money 377 

XXI    Developed  Functions  of  a  Modern  Bank  402 
XXII    The  Trend  of  the  Monetary  and  Bank- 
ing System 424 

XXIII    Sound  Minds  in  Sound  Bodies  ....  437 
Index 463 


THE  FLOW  OF  VALUE 


THE  FLOW  OF  VALUE 


HUMAN   EFFORT   AND   HUMAN    WANTS 

It  is  an  every-day  saying  that  if  we  want  to 
understand  a  thing  we  must  look  at  it  from  a  de- 
tached point  of  view.  This  means  that  in  order 
to  obtain  full  enlightenment  in  regard  to  a  sub- 
ject it  must  be  considered  in  all  its  relations 
and  without  bias.  It  is  difficult  for  a  person  to 
take  such  a  view  of  a  matter  in  which  he  has 
an  immediate  self-interest;  difficult  for  any  one, 
reared  in  an  environment  that  has  engendered 
certain  preconceptions,  to  take  such  a  view  of 
any  problem  affected  by  them.  In  the  endeavor 
to  lead  to  a  completely  detached  judgment,  earthly 
events  are  sometimes  presented  as  they  con- 
ceivably might  appear  to  a  being  from  another 
planet,  typified  by  the  Man  from  Mars.  The 
presumption  is  that  the  Man  from  Mars  is  ut- 
terly unfamiliar  with  the  course  of  things  in  this 
world  but  is  the  personification  of  that  intelligence 
which  enables  him  to  perceive,  prompts  him  to  in- 
quire, and  impels  him  to  logical  conclusion.    Let 

3 


4  THE  FLOW  OF  VALUE 

us  attempt  to  outline  certain  phases  of  human  ex- 
istence as  they  would  have  appeared  to  him  had  he 
arrived  on  this  earth  at  any  time  during  the  years 
which  preceded  the  outbreak  of  the  war  of  1914, 
and  soared  above,  around,  and  among  mankind. 

The  Man  from  Mars  would  have  perceived  that 
all  human  beings  consume  food,  that  under  the 
conditions  of  civilization  they  wear  clothes  and  live 
in  houses  wherein  are  things  they  use  and  things 
that  adorn.  He  would  perceive  that  a  large  por- 
tion of  the  population  spends  hours  of  the  day  at 
work  on  the  farm,  in  the  forest,  in  mine,  mill,  fac- 
tory, office,  and  store,  in  propelling  vehicle  and 
vessel.  His  intelligence  would  lead  to  the  prompt 
discernment  of  the  fundamental  fact  that  the  pur- 
pose of  all  of  this  activity  of  those  who  work  is  to 
provide  the  food,  the  clothing,  the  shelter,  and 
other  things  and  services  which  minister  to  all 
who  are  living. 

He  would  perceive  that  human  effort  is  put  forth 
to  meet  human  wants.  He  would  perceive  that 
human  wants  can  not  be  met  without  the  putting 
forth  of  human  effort. 

The  Man  from  Mars  would  perceive  that  for  the 
satisfaction  of  his  wants  every  person  is  dependent 
upon  the  efforts  of  others,  that  no  one  family  can 
under  the  conditions  of  modern  civilization  pro- 
vide even  the  things  essential  to  its  existence  en- 
tirely and  exclusively  through  the  exertions  of  its 
own  members. 


HUMAN  EFFORT  AND  HUMAN  WANTS   5 

A  more  searching  survey  of  this  activity  would 
reveal  that  a  multitude  of  persons  are  engaged  in  a 
multitude  of  pursuits — in  plowing,  sowing,  reap- 
ing, threshing,  in  converting  grain  into  its  prod- 
ucts, in  preparing  these  products  for  the  table ;  in 
planting  and  gathering  vegetables,  nourishing 
trees,  gathering  fruits;  in  raising  food  animals, 
in  transforming  their  flesh  into  forms  of  food,  and 
horn,  hide,  and  hoof  into  forms  of  use ;  in  felling 
trees  and  sawing  logs,  in  fashioning  the  logs  into 
boards,  beams,  and  shingles,  doors,  and  window- 
frames,  in  placing  these  forms  in  structures;  in 
extracting  minerals,  in  loading  and  preparing  coal, 
in  smelting  ores,  making  them  into  mattes,  bars, 
and  billets,  and  working  these  into  the  final  forms 
of  use;  in  gathering  and  preparing  cotton,  wool, 
silk,  and  linen,  in  transforming  fabrics  into  gar- 
ments ;  in  the  transportation  of  persons  and  things 
by  land  and  sea;  in  storing  and  marketing  the 
things  that  others  have  prepared;  in  the  exten- 
sion of  knowledge  and  the  diffusion  of  intelligence ; 
in  the  practice  of  the  professions  and  the  arts. 

The  exertion  of  this  activity  means  that  there 
are  always  the  application  of  human  effort  and 
that  to  which  it  is  applied.  Human  effort  is  force 
emanating  from  the  body  and  the  brain.  It  is  ap- 
plied to  that  which  exists  in  man's  environment. 
This  is  the  universe — the  cosmos — throughout 
which  there  is  the  perpetual  reaction  and  inter- 
action of  the  cosmic  forces.    His  more  immediate 


6  THE  FLOW  OF  VALUE 

environment  is  the  earth,  the  air,  the  water,  and  all 
that  in  them  is — the  matter  of  which  they  are  com- 
posed and  the  forces  which  play  upon  that  matter. 
His  effort  may  be  applied  directly  in  transforming 
matter  into  the  things  that  meet  his  wants  or  in 
directing  the  application  of  cosmic  force  in  that 
transformation.  Thus  man's  activity  in  provid- 
ing the  things  that  meet  his  wants  consists  in  the 
application  of  force  to  matter. 

Further  penetration  of  his  intelligence  would 
disclose  to  the  Man  from  Mars  that  the  matter 
to  which  man  applies  force  is  substance,  such  as 
the  ores,  woods  and  fibers,  the  grains  and  fruits,  so 
wrought  by  cosmic  force  that  it  meets  his  wants 
or  can  be  transformed  to  meet  his  wants.  He 
would  perceive  that  different  substances  are  com- 
bined and  fused  to  serve  respective  ends.  Nearly 
every  viand  is  of  many  ingredients.  Few  of  the 
materials  for  clothing  are  composed  entirely  of 
one  original  substance.  Silk  from  the  cocoon,  cot- 
ton from  the  boll,  wool  from  the  sheep,  leather 
from  the  hide,  are  treated  with  a  variety  of  sub- 
stances to  give  them  durability,  luster,  color,  and 
pattern:  wool,  silk,  and  cotton  are  combined  in 
different  fabrics  in  varying  proportions.  Even 
modest  dwellings  have  foundations  of  brick,  stone, 
or  cement  joined  with  mortar,  a  composite  sub- 
stance. In  the  superstructures  are  divers  woods, 
iron  and  steel  in  different  forms;  roof,  cornices, 
and  spouts  may  be  of  wood,  slate,  tin,  or  copper. 


HUMAN  EFFORT  AND  HUMAN  WANTS   7 

The  paint  and  varnish  are  composed  of  ore,  oil, 
and  other  ingredients.  In  many  structures  are 
brass  made  by  fusing  copper  and  zinc,  bronze 
made  of  copper  and  tin.  The  glass  of  the  win- 
dows has  been  made  of  two  or  three  or  more  sub- 
stances. In  the  furniture,  woods  of  different 
kinds  are  often  combined.  The  books  on  the 
shelves  may  be  of  paper  made  from  discarded  gar- 
ments or  of  pulp  from  the  forests,  of  printers'  ink 
compounded  of  several  substances,  and  the  bind- 
ing is  often  of  different  substances  in  combination. 
This  fusing  and  combining  of  substance  is  ef- 
fected by  the  fused  and  combined  effort  of  many 
men.  Nearly  all  existing  forms  of  matter  that 
were  fashioned  by  human  effort  were  wrought  by 
the  conjoint  effort  of  many  men,  and  their  utiliza- 
tion in  further  production  is  by  the  conjoint  effort 
of  many  men.  In  the  operation  of  machines  there 
is  the  conjoint  application  of  human  effort  and  cos- 
mic force.  Their  effect  is  exemplified  in  purging 
ores  of  dross,  transforming  them  into  billets  and 
bars,  and  finally  into  wire,  into  nails,  and  other 
forms  of  use.  Their  effect  is  exemplified  by  the 
modern  ocean  liner,  in  the  construction  of  which 
there  has  been  the  application  of  every  kind  of 
force  to  every  staple  substance.  It  embodies  the 
results  of  the  joint  effort  of  thousands,  perhaps  of 
hundreds  of  thousands,  of  men.  Thus  there  is  the 
convergence  of  force  from  different  sources.  The 
examples  that  have  been  given  of  this  convergence 


10  THE  FLOW  OF  VALUE 

are  returned  by  the  contract  tailor  to  the  clothing 
factory,  whence  they  are  transported  to  the  retail 
store,  whence  they  pass  into  the  possession  of  the 
wearer.  These  garments  may  clothe  clerks  in  the 
shops  of  San  Francisco,  farmers  in  the  Mississippi 
Valley,  operatives  in  the  mills  of  the  Carolinas. 
Each  and  every  wearer  benefits  by  the  application 
of  effort  by  every  one,  from  the  ranchman  who 
attended  the  sheep  and  the  negro  who  picked  the 
cotton  to  the  seamstress  who  sewed  on  the  buttons. 

It  may  seem  that  the  effort  of  the  domestic 
servant  who  cooks  and  sweeps  does  no  more  than 
minister  to  the  comfort  of  the  household.  Yet 
that  ministration  contributes  to  promote  the  vi- 
tality of  her  employer  and  therefore  in  a  measure 
to  his  putting  forth  effort  toward  results  that  may 
diffuse  throughout  the  world.  Through  intricate 
and  ramifying  processes  are  brought  to  that 
servant  her  food,  her  clothing,  and  her  shelter. 

From  an  electric  power-house  emanate  the 
waves  of  the  mysterious  force  that  illumines  the 
night  and  gives  motion  to  the  cars  that  carry 
passengers  to  and  fro,  thus  contributing  to  the 
putting  forth  of  effort  by  persons  of  all  sorts  and 
conditions.  Through  the  application  of  force, 
substance  is  transformed  into  forms  to  which 
force  is  applied  in  further  transformation,  and  so 
on  in  infinite  series.  From  every  man  the  results 
of  his  efforts  extend  as  ripples  extend  from  a  cen- 
ter in  a  lake :  they  are  interlaced  with  the  results 


HUMAN  EFFORT  AND  HUMAN  WANTS     11 

of  the  efforts  of  others  as  the  ripples  from  many 
centers  in  a  lake  are  intermingled. 

As  his  sojourn  upon  this  earth  continued,  the 
Man  from  Mars  would  perceive  that  instant  by  in- 
stant human  beings  are  being  born  into  this  world, 
instant  by  instant  human  beings  pass  out  of  this 
world;  that  the  current  of  human  existence  is  in 
ceaseless  flow.  He  would  perceive  that  the  wants 
of  the  living  are  met  in  greatest  measure  by  the 
activity  of  the  living,  that  in  part  they  are  met  by 
the  results  of  the  efforts  of  those  who  have  passed 
away,  and  that  the  activity  of  the  living  will  fur- 
ther the  existence  of  those  who  are  to  come. 

He  would  reflect  that,  as  it  is  necessary  for  men 
to  put  forth  effort  in  order  to  obtain  the  things 
and  services  necessary  to  their  existence,  it  fol- 
lows that  they  are  impelled  continually  to  put 
forth  effort  in  order  that  their  existence  may  con- 
tinue. If  production  suddenly  were  to  cease  there 
would  be  no  food  and  it  would  not  be  very  long 
before  all  clothing  were  worn  out :  there  would  be 
no  use  for  structures  of  any  kind  or  machines  and 
appliances.  Thus  it  is  that  food  is  now  in  prepa- 
ration for  future  consumption ;  cotton,  wool,  linen, 
and  leather  are  now  being  transformed  into  cloth- 
ing to  be  worn  in  the  future;  coal  is  now  being 
taken  from  the  mines  for  subsequent  combustion ; 
woods  are  being  cut  from  the  forests,  and  ores 
taken  from  their  beds   for  transformation;   by 


10  THE  FLOW  OF  VALUE 

are  returned  by  the  contract  tailor  to  the  clothing 
factory,  whence  they  are  transported  to  the  retail 
store,  whence  they  pass  into  the  possession  of  the 
wearer.  These  garments  may  clothe  clerks  in  the 
shops  of  San  Francisco,  farmers  in  the  Mississippi 
Valley,  operatives  in  the  mills  of  the  Carolinas. 
Each  and  every  wearer  benefits  by  the  application 
of  effort  by  every  one,  from  the  ranchman  who 
attended  the  sheep  and  the  negro  who  picked  the 
cotton  to  the  seamstress  who  sewed  on  the  buttons. 

It  may  seem  that  the  effort  of  the  domestic 
servant  who  cooks  and  sweeps  does  no  more  than 
minister  to  the  comfort  of  the  household.  Yet 
that  ministration  contributes  to  promote  the  vi- 
tality of  her  employer  and  therefore  in  a  measure 
to  his  putting  forth  effort  toward  results  that  may 
diffuse  throughout  the  world.  Through  intricate 
and  ramifying  processes  are  brought  to  that 
servant  her  food,  her  clothing,  and  her  shelter. 

From  an  electric  power-house  emanate  the 
waves  of  the  mysterious  force  that  illumines  the 
night  and  gives  motion  to  the  cars  that  carry 
passengers  to  and  fro,  thus  contributing  to  the 
putting  forth  of  effort  by  persons  of  all  sorts  and 
conditions.  Through  the  application  of  force, 
substance  is  transformed  into  forms  to  which 
force  is  applied  in  further  transformation,  and  so 
on  in  infinite  series.  From  every  man  the  results 
of  his  efforts  extend  as  ripples  extend  from  a  cen- 
ter in  a  lake :  they  are  interlaced  with  the  results 


HUMAN  EFFORT  AND  HUMAN  WANTS  11 

of  the  efforts  of  others  as  the  ripples  from  many 
centers  in  a  lake  are  intermingled. 

As  his  sojourn  upon  this  earth  continued,  the 
Man  from  Mars  would  perceive  that  instant  by  in- 
stant human  beings  are  being  born  into  this  world, 
instant  by  instant  human  beings  pass  out  of  this 
world;  that  the  current  of  human  existence  is  in 
ceaseless  flow.  He  would  perceive  that  the  wants 
of  the  living  are  met  in  greatest  measure  by  the 
activity  of  the  living,  that  in  part  they  are  met  by 
the  results  of  the  efforts  of  those  who  have  passed 
away,  and  that  the  activity  of  the  living  will  fur- 
ther the  existence  of  those  who  are  to  come. 

He  would  reflect  that,  as  it  is  necessary  for  men 
to  put  forth  effort  in  order  to  obtain  the  things 
and  services  necessary  to  their  existence,  it  fol- 
lows that  they  are  impelled  continually  to  put 
forth  effort  in  order  that  their  existence  may  con- 
tinue. If  production  suddenly  were  to  cease  there 
would  be  no  food  and  it  would  not  be  very  long 
before  all  clothing  were  worn  out :  there  would  be 
no  use  for  structures  of  any  kind  or  machines  and 
appliances.  Thus  it  is  that  food  is  now  in  prepa- 
ration for  future  consumption ;  cotton,  wool,  linen, 
and  leather  are  now  being  transformed  into  cloth- 
ing to  be  worn  in  the  future;  coal  is  now  being 
taken  from  the  mines  for  subsequent  combustion ; 
woods  are  being  cut  from  the  forests,  and  ores 
taken  from  their  beds   for  transformation;   by 


12  THE  FLOW  OF  VALUE 

means  of  structures,  machines,  and  appliances, 
substances  are  now  being  transformed  into  things 
that  will  be  used  hereafter,  and  into  materials 
which  will  enter  into  the  future  construction  of 
structures,  machines,  and  appliances. 

This  means  that  there  must  be  continual  re- 
placement of  that  which  is  used  and  consumed. 
As  bone  and  tissue  of  the  body  wear  away  they 
must  be  repaired;  as  crops  are  harvested  new 
crops  must  be  sown;  as  timber  is  cut  new  trees 
must  be  grown  or  additional  forests  brought  into 
use ;  as  ores  are  extracted  additional  beds  of  min- 
erals must  be  acquired;  as  substance  passes 
through  stages  of  transformation  new  substance 
must  be  provided;  structures,  machines,  and  aj)- 
pliances  must  be  repaired,  renewed,  and  finally 
replaced. 

Replacement  need  not  always  be  exact  in  kind 
but  must  furnish  that  which  will  serve  the  purpose. 
As  food  is  consumed  additional  stocks  of  food- 
stuffs must  be  provided,  but  the  elements  that  are 
transformable  into  organic  tissue  are  found  in 
differing  proportions  in  different  substances. 
Wholesome  and  adequate  diet  may  be  provided  by 
a  great  variety  of  selections  from  different  kinds 
of  grain,  different  species  of  fish,  flesh,  and  fowl, 
different  kinds  of  vegetables  and  fruits.  Sub- 
stance for  clothing  must  be  soft,  pliable,  durable, 
of  different  degrees  of  warmth.  There  are  divers 
kinds  and  grades  of  wool,  of  cotton,  of  silk,  of 


HUMAN  EFFORT  AND  HUMAN  WANTS     13 

linen,  of  fur,  and  of  leather  that  meet  these  re- 
quirements ;  paper  is  coming  into  use  for  garments 
a&  are  the  fibers  of  plants  not  hitherto  so  used. 
Substance  for  buildings  must  be  hard,  durable, 
resistant  to  weather,  susceptible  of  being  wrought 
into  shape  and  placed  as  required.  Various  kinds 
of  wood,  of  stone,  of  clay,  of  ores  are  thus  adapt- 
able. Substance  for  engines,  machines,  tools,  and 
appliances  must  be  suited  to  the  divers  purposes 
— ^to  bore,  cut,  drill,  turn,  and  lift.  Numerous 
woods,  metals,  and  stones  can  be  fashioned  to 
serve  these  ends. 

Not  only  is  one  substance  substituted  for  an- 
other but  substance  of  one  kind  is  continually  be- 
ing substituted  for  substance  of  another  kind,  new 
uses  are  ever  being  found  for  substances  known 
to  man  throughout  the  ages,  and  substances  such, 
for  example,  as  platinum,  aluminum,  and  rubber 
are  brought  into  a  more  extended  and  varied  use. 

As  we  reflect  upon  all  that  furthers  the  life  of 
mankind,  we  comprehend  the  meaning  of  the  work 
of  man.  Impressive  are  the  manifestations  of  ex- 
istence in  which  he  has  no  part.  There  is  sublim- 
ity in  regions  of  arctic  ice,  grandeur  in  mountain 
forest;  and  fascinating  is  the  teeming  plant  and 
animal  life  of  tropical  jungle.  We  perceive  the 
effect  of  man's  reaction  upon  his  environment  in 
the  vast  areas  where  soil  is  tilled,  flocks  are  herded, 
forests  are  cut,  and  minerals   taken   from   the 


14  THE  FLOW  OF  VALUE 

earth.  His  work  is  more  in  evidence  in  town  and 
city.  After  the  sunlight  wanes,  street  and  dwell- 
ing and  place  of  assembly  are  made  almost  as 
available  for  his  pursuits  as  before  by  the  light  his 
effort  provides.  In  response  to  the  play  of  cosmic 
force,  the  air  ebbs  and  swirls,  water  rises  to  the 
clouds  and  falls  to  the  earth  again,  but  he  regulates 
the  course  of  the  air  and  conveys  water  for  his  use 
through  dwelling  and  work-place,  through  church, 
theater,  and  hospital,  which  likewise  by  means  of 
his  effort  are  suffused  with  warmth  when  the  win- 
ter rages.  In  the  light  of  this  reflection,  no  longer 
are  the  great  buildings  and  the  avenues  of  the  city 
of  the  same  character  in  the  landscape  as  are  hill, 
plain,  and  river.  Wood,  brick,  stone,  and  steel 
were  once  in  the  forest  and  in  the  earth.  Through 
the  application  of  human  effort  these  substances 
were  made  into  buildings.  The  texture,  form, 
and  color  of  all  the  wares  displayed  in  all  the 
shops  have  been  due  to  human  effort.  Within  the 
home,  desk,  table,  and  chair,  the  shelves  and  their 
books,  the  coverings  of  floor  and  wall,  and  the  pic- 
tures that  hang  upon  the  wall  have  been  given  form 
and  place  by  the  effort  of  man.  Without  are  the 
streets  that  have  been  paved  and  the  park  that  has 
been  cultivated  by  him.  There  comes  an  awing 
and  reverent  sense  of  the  thought  of  the  brain  and 
the  work  of  the  hand  of  the  innumerable  throng 
who  have  ministered  unto  us. 


HUMAN  EFFORT  AND  HUMAN  WANTS     15 

If  after  perceiving  things  as  they  are,  or 
rather  as  they  were  prior  to  the  outbreak  of  the 
war,  the  Man  from  Mars  should  try  to  learn  how 
they  came  to  be  as  they  then  were,  there  would 
arise  the  thought  that  that  which  was  of  the  day 
was  in  sequence  to  that  which  was  of  the  yester- 
day. And  thus  from  yesterday  to  yesterday 
throughout  the  centuries,  throughout  the  ages,  has 
flowed  the  sequence  of  cause  and  effect  through 
which  human  beings,  their  activities,  their  affairs, 
their  creeds,  their  institutions,  their  wants,  and 
their  efforts  in  supplying  these  wants  came  to  be 
as  they  were  before  the  war  began. 

As  the  animal  with  four  legs  came  to  stand  on 
two,  the  fore-limbs  were  free  for  other  use.  Thus 
as  man  evolved,  there  developed  the  hand  of  man. 
This  he  used  in  pushing,  pulling,  lifting,  and 
carrying.  But  little  mental  effort  is  required  in 
directing  the  muscles  of  the  body  in  such  exer- 
tion, and  therefore  those  of  the  lowest  intelligence 
to-day  can  do  little  more  with  their  hands  than 
this.  In  higher  application,  the  hand  of  man  takes 
things  apart  and  puts  them  together  in  forms  in- 
tricate and  manifold.  To  this  developing  dexter- 
ity is  necessary  an  increasing  delicacy  of  percep- 
tion and  a  more  determinate  guidance  by  the 
brain. 

In  the  course  of  time  the  human  being  made  the 
lower  animals  push  and  pull  and  carry  for  him. 


16  THE  FLOW  OF  VALUE 

He  learned  to  bring  the  force  of  gravity  to  his 
aid,  and  to  make  the  currents  of  the  winds  and 
waters  work  his  will.  To  this  achievement  was 
requisite  the  intelligence,  developed  after  he  had 
been  on  this  earth  millions  of  years,  to  make 
steam  serve  as  power,  the  all-pervading  electricity 
serve  his  purposes,  chemical  force  to  dissolve 
forms  of  matter  into  their  elements  and  to  com- 
bine these  elements  into  other  forms  of  use  to  him. 

Until  about  the  beginning  of  the  nineteenth  cen- 
tury there  were  few  tools  other  than  those  which 
directly  enhanced  the  power  of  the  hand.  In  the 
last  one  hundred  years  man  has  come  to  provide 
structures,  machines,  and  appliances  used  in  the 
transformation  of  substance.  Cosmic  force  may 
be  applied  through  tools  and  machines  to  push, 
pull,  lift,  and  carry,  in  taking  things  apart  and 
putting  them  together,  in  the  fashioning  of  things 
ponderous  and  massive,  delicate  and  intricate,  not 
only  in  fashioning  concrete  things  but  in  the  pro- 
vision of  intangible  service — power,  heat,  and 
light.  Human  progress  is  marked  by  the  triumph 
of  mind  over  matter,  and  by  the  triumph  of  mind 
over  force. 

As  men  work  together,  their  efforts  must  be 
directed  and  coordinated.  To  the  direction  of  the 
efforts  of  others  and  to  the  application  of  cosmic 
force  is  requisite  the  brain  capable  of  conceiving 
the  thing  it  is  desired  to  produce,  and  the  mental 
force  competent  to  direct  that  application  of  force 


HUMAN  EFFORT  AND  HUMAN  WANTS     17 

to  matter  which  results  in  its  production.  In  an 
ascending  scale  there  is  the  triumph  of  the  minds 
of  men  over  the  force  emanating  from  the  lower 
animals,  of  minds  of  a  higher  order  over  the  force 
emanating  from  men  with  minds  of  a  lower  order, 
and  over  the  cosmic  forces  that  play  throughout 
the  universe. 

With  the  growth  of  civilization  has  come  the 
thirst  for  knowledge :  the  developing  appreciation 
of  form,  color,  and  harmony  has  brought  the  de- 
sire for  works  of  art  and  the  impulse  that  prompts 
their  production.  There  must  be  the  exertion  of 
human  effort  in  meeting  the  wants  of  the  mind  and 
of  the  soul  as  well  as  those  of  the  body. 


n 

PROPERTY  IN  MATTER  AND  PROPERTY  IN  FORCE 

As  the  wants  of  each  person  are  met  by  the  re- 
sults of  the  efforts  of  others,  there  must  be  the 
exchange  of  the  results  of  effort  between  different 
persons.  As  there  is  this  exchange  between  per- 
sons living  in  one  place  and  those  living  in  an- 
other, there  is  the  exchange  of  the  results  of  ef- 
fort through  space.  As  there  is  the  exchange  of 
the  results  of  effort  produced  at  one  time  for  those 
produced  at  another,  there  is  the  exchange  of  the 
results  of  effort  through  time. 

Exchange  implies  possession,  and  possession 
implies  property.  The  essence  of  property  is  the 
right  to  hold,  use,  and  dispose  at  will.  It  has  been 
held  for  the  common  good  that  rights  to  property 
shall  be  protected  by  law.  This  means  that  no' one 
shall  be  dispossessed  of  that  in  which  he  has  prop- 
erty except  for  the  common  good  as  prescribed  by 
law,  and  in  no  event  unless  he  is  accorded  just 
compensation. 

During  the  ages  throughout  which  the  law  of 
property  developed,  it  was  not  understood  that  all 
forms  of  existence  are  due  to  the  reaction  and 

18 


PROPERTY  IN  MATTER  AND  FORCE     19 

interaction  between  force  and  matter.  The  con- 
ception of  the  rights  of  property  applied  to  con- 
crete things — ^to  forms  of  matter — and  the  con- 
ception of  the  rights  to  property  in  the  main  so 
applies  to-day. 

Essential  to  property  is  the  application  of  hu- 
man effort,  which  first  brings  into  possession  that 
in  which  there  is  property,  and  the  putting  forth 
of  effort  when  necessary  to  protect  the  rights  of 
property  in  that  which  has  been  brought  into  pos- 
session. Such  effort  is  primarily  exerted  by  the 
person  in  protecting  his  rights.  It  is  reinforced 
by  effort  applied  through  governmental  agencies 
— through  the  administration  and  enforcement  of 
the  law  which  rests  upon  the  consensus  of  public 
opinion  that  rights  in  property  must  be  recognized 
and  maintained.  There  may  be  property  in  land 
itself  and  in  that  which  exists  in  or  grows  out  of 
the  land — in  timber  in  the  forest,  minerals  in  their 
beds,  in  the  birds  and  beasts  that  inhabit  the  land. 
There  may  be  property  in  water,  in  the  things,  ani- 
mate and  inanimate,  that  exist  therein. 

The  right  to  property  is  not  only  the  right  to 
hold,  use,  and  dispose  of  that  in  which  a  person 
has  property,  but  also  to  hold,  use,  and  dispose 
of  that  which  is  produced  through  the  utilization 
of  that  in  which  he  has  property.  Thus  man  has 
property  not  only  in  the  soil  but  also  in  the  crops 
yielded  by  the  soil,  not  only  in  animals  but  also  in 
their  young;  he  has  property  in  the  substance 


20  THE  FLOW  OF  VALUE 

which  he  transforms  and  in  the  things  into  which 
it  is  transformed. 

Man  not  only  uses  and  disposes  of  forms  of 
matter  but  he  uses  and  disposes  of  measures  of 
force.  The  very  use  and  disposition  of  matter 
necessarily  involves  the  use  and  disposition  of 
force.  The  results  of  his  efforts  are  due  as  much 
to  the  application  of  force  as  to  the  matter  to 
which  force  is  applied. 

The  right  to  property  in  the  force  which  man 
directs  to  his  ends  has  an  implied  recognition  in 
the  law.  In  the  sense  that  a  man  has  the  right 
either  to  use  or  to  dispose  of  the  right  to  use  the 
force  thereof,  he  has  property  in  his  body  and  his 
brain.  There  is  also  the  potentiality  of  such  force. 
A  man  may  use  and  dispose  of  his  effort  to-day. 
He  may  determine  thus  to  put  forth  effort  to-mor- 
row or  not  to  do  so.  Men  who  direct  and  co- 
ordinate the  efforts  of  other  men  do  not  have 
property  in  the  bodies  and  brains  of  these  other 
men,  although  the  former  may  have  property  in 
the  results  obtained  by  the  application  of  their 
efforts.  Property  in  a  waterfall  certainly  in- 
cludes the  right  to  use  and  dispose  of  the  force 
generated  by  the  water.  As  there  is  property  in 
the  steam-engine,  the  gas-engine,  the  dynamo,  and 
in  the  substances  utilized  in  the  generation  of  force 
by  them,  it  would  seem  that  there  is  property  in 
the  force  generated  and  applied.  This  force  may 
be  used,  or  the  right  to  its  utilization  may  be  dis- 


PROPERTY  IN  MATTER  AND  FORCE     21 

posed  of.  There  is  also  the  potentiality  of  such 
force.  Through  engine  and  machinery  the  owner 
may  generate  and  apply  force  to-day.  He  may 
determine  so  to  generate  and  apply  force  to-mor- 
row or  not  to  do  so. 

Concrete  things  are  of  definite  measurement; 
therefore  the  property  of  persons  in  them  may  be 
exactly  defined  and  limited.  The  limit  within 
which  man  exercises  control  and  beyond  which  he 
does  not  exercise  control  over  the  forces  that  per- 
vade the  universe  is  often  difficult  of  perception, 
and,  therefore,  the  degrees  of  his  property  in 
force  may  not  always  be  susceptible  of  exact  defini- 
tion. In  a  measure  he  makes  the  force  of  gravity 
serve  his  ends,  but  in  vastly  greater  measure  it  is 
beyond  his  control.  The  force  of  wind  and  wave 
to  a  degree  he  utilizes,  but  the  ebb  and  flow  of 
their  mighty  currents  is  regardless  of  his  will. 
Although  the  essential  processes  of  organic  life 
are  even  beyond  his  knowledge,  by  planting  seed 
of  a  given  kind  in  soil  in  which  he  has  property  he 
determines  the  kinds  of  crops  that  will  be  yielded, 
in  large  measure  their  quality  and  quantity;  by 
the  manner  of  breeding  animals  he  determines  the 
kinds  that  will  be  propagated,  and  in  large  meas- 
ure their  qualities  and  their  number.  He  thus  to 
an  extent  directs  the  manifestation  of  the  life- 
giving  forces  themselves. 

The  written  law  has  defined  the  rights  to  prop- 
erty in  matter ;  it  has  not  as  yet  fully  defined  the 


22  THE  FLOW  OF  VALUE 

rights  to  property  in  force.  The  law  of  copyright 
and  the  patent  law  affirm  the  right  to  property  in 
composition  or  invention,  the  result  of  force  em- 
anating from  the  human  brain;  and  the  mechan- 
ic's lien  protects  the  right  to  the  wage  due  in 
return  for  the  effort  of  the  artisan.  There  is, 
however,  lack  of  general  recognition  of  the  fact 
that  to  the  mental  effort  of  those  who  direct  and 
coordinate  the  application  of  force,  is  due  the  pro- 
duction in  greater  volume  than  otherwise  would  be 
possible  of  the  things  that  men  use  and  consume. 
It  is  not  only  the  concrete  things  in  which  a  man 
or  a  business  organization  has  property  that  con- 
duce to  the  most  effective  production  of  things  and 
services  that  meet  the  wants  of  human  kind,  but  in 
greater  measure  the  brains  of  those  who  give  that 
arrangement  to  these  concrete  things  which  en- 
ables their  most  effective  utilization,  and  so  direct 
and  coordinate  the  application  of  force  to  them 
and  through  them  that  the  most  effective  result  is 
obtained. 


ni 

UTILITY  AND   UTILITIES 

Tn  this  chapter  necessarily  begins  the  formation 
of  definitions  and  use  of  the  terms  defined.  There 
can  not  be  discussion,  or  even  expression,  with- 
out designation.  The  use  of  a  designation  im- 
plies cognizance  of  that  to  which  it  is  applied 
and  of  all  to  which  it  may  be  applied.  Therefore 
definition  and  classification  are  correlative  with 
designation. 

Much  of  discussion  is  futile  because  those  tak- 
ing part  ascribe  different  meanings  to  the  same 
term:  not  infrequently  the  same  term  may  be 
used  in  different  meanings  by  the  same  person, 
and  not  always  because  of  mental  confusion.  In 
greater  part,  perhaps,  it  is  due  to  what  is  com- 
monly said  to  be  the  difficulty  of  arriving  at  clear- 
cut  definition  and  exact  classification.  When  there 
is  the  attempt  to  define  or  classify  different  phases 
of  the  flow  of  existence  the  diflBculty  becomes  an 
impossibility.  One  phase  so  merges  into  another 
that  there  can  not  be  a  definition  or  a  classification 
that  will  include  all  it  is  desired  to  include,  or  ex- 
clude all  it  is  desired  to  exclude.    There  is  evi- 

23 


24  THE  FLOW  OF  VALUE 

dence  of  this  in  the  uncertain  distinction  between 
hummock  and  hill,  hill  and  mountain,  between 
brook,  creek,  and  river. 

This  impossibility  is  a  correlative  of  evolution 
and  incidentally  affords  a  degree  of  verification  of 
the  theory  of  evolution.  All  of  the  forms  of  ex- 
istence proceed  from  the  transmutation  of  force 
and  the  transformation  of  matter.  As  there  is 
this  transmutation  and  transformation,  forms  of 
existence  are  derived  from  preceding  forms.  Dif- 
ferentiation proceeds  through  a  succession  of 
phases  before  there  is  a  clear-cut  distinction  be- 
tween different  forms  that  have  developed  from  a 
common  antecedent.  There  can  not  be  clear-cut 
definition  where  there  is  not  clear-cut  distinction. 
For  example,  although  every  one  knows  what  is  a 
plant  and  what  is  an  animal,  there  are  organisms 
that  have  characteristics  of  both  and  thus  can  not 
clearly  be  placed  in  one  group  or  the  other.  Of 
these  are  certain  kinds  of  bacteria  that  are  said 
by  zoologists  to  be  animals  and  by  botanists  to  be 
plants.  The  presence  of  chlorophyll  or  of  cellu- 
lose is  supposed  to  be  a  distinguishing  character- 
istic of  plants,  yet  there  are  forms  of  animal  life 
that  have  chlorophyll  and  others  that  have  cellu- 
lose. The  power  of  locomotion  is  presumably  a 
characteristic  of  the  animal,  yet  there  are  forms  of 
plant  life  having  this  power.  Indeed  there  are 
biologists  who  tell  us  there  is  no  conclusive  justi- 
fication for  the  grouping  of  living  things  as  be- 


UTILITY  AND  UTILITIES  25 

longing  to  the  so-called  plant  kingdom  or  the  so- 
called  animal  kingdom. 

Another  example.  There  apparently  is  a  palp- 
able distinction  between  the  ground  surrounding 
a  dwelling  and  a  farm.  The  householder  may  de- 
vote part  of  the  ground  to  raising  garden  truck 
for  his  own  use ;  he  may  give  a  portion  of  the  truck 
to  a  neighbor  or  sell  portions  to  one  or  more  neigh- 
bors or  to  the  grocer  for  resale.  The  ground  may 
be  a  quarter  acre  or  less,  a  half  acre,  an  acre,  or 
more.  He  may  employ  a  gardener,  whether  or 
not  he  sell  any  of  the  produce.  What  is  a  farm? 
The  census  bureau  has  had  difficulty  in  determin- 
ing and  has  not  always  adhered  to  the  same  defini- 
tion from  one  census  to  another.  Again,  every 
one  knows  the  difference  between  a  locomotive  and 
a  train  of  cars.  Yet  when  a  locomotive  is  run- 
ning on  a  main  railroad  track  it  must  have  signals 
at  front  and  rear,  and  a  train  number  for  record 
and  the  reception  of  running  orders,  the  same  as 
though  it  pulled  a  number  of  cars.  Every  one 
knows  the  difference  between  a  passenger  train 
and  a  freight  train,  yet  there  are  trains  composed 
of  both  passenger  cars  and  freight  cars,  and  these 
** mixed  trains"  have  been  a  bothersome  item  in 
railroad  statistics. 

Then  again,  new  words  have  not  always  come 
into  use  as  the  mind  has  progressed  in  discriminat- 
ing perception.  A  word  that  has  had  a  simple 
meaning  may  come  to  be  used  in  various  senses 


26  THE  FLOW  OF  VALUE 

related  to  the  original  significance.  For  example, 
impact  of  the  hand  is  a  blow,  and  motion  of 
the  air  that  may  give  impact  is  the  blowing  of  the 
wind.  There  is  the  sense  of  shock.  This  leads  in 
one  direction  to  the  designation  of  the  weighty 
impact  of  a  steam  hammer  as  a  blow,  and  in  an- 
other direction  to  the  designation  of  a  sudden 
pain,  disappointment,  or  grief  as  a  blow.  As  the 
blowing  of  the  wind  typifies  the  unsubstantial, 
boasting  comes  to  be  designated  as  blowing,  and 
the  braggart  as  a  blow  or  a  blow  hard.  The  dic- 
tionary presents  a  multitude  of  examples  of  this 
differing  use  of  the  same  word. 

Therefore  all  that  can  be  expected  of  a  defini- 
tion or  a  classification  is  that  it  applies  to  forms 
of  matter  or  kinds  of  force  that  are  so  differen- 
tiated as  to  be  distinguishable  in  the  main  from 
other  forms  or  kinds ;  that  is,  that  a  term  be  of  the 
utmost  serviceableness  which  the  persistent  blend- 
ing of  one  phase  of  existence  into  another  permits. 

The  enunciation  of  a  principle,  a  rule,  or  a  law 
is  beset  with  similar  limitations.  The  flow  of 
cause  and  effect  is  in  such  ramifications  that  there 
will  be  exceptions  to  any  formula,  save  in  the  ex- 
actness of  mathematical  abstraction.  Yet  there 
may  be  such  perception  of  a  certain  sequence  in 
great  groups  of  phenomena  as  to  justify  general- 
ization. All  that  can  be  expected  of  such  general- 
ization is  that  it  will  be  serviceable  in  determining 
tl^e  flow  of  phenomena  in  an  overwhelmingly  pre- 


UTILITY  AND  UTILITIES  27 

ponderani  number  of  the  cases  to  which  it  is  ap- 
plied. 

Toward  meeting  his  wants  man  utilizes  matter 
in  vast  aggregates,  in  manifold  combinations,  and 
in  minute  subdivisions.  He  utilizes  force  in 
mighty  currents  and  in  infinitesimal  pulsation. 
Matter  is  of  infinite  variety  and  innumerable 
designations:  force  is  of  many  kinds  and  many 
designations.  There  needs  to  be  a  term  for  the 
designation  in  common  of  every  form  of  matter 
and  every  form  of  force  that  man  uses  for  his 
purposes. 

That  which  meets  a  want  is  utilized :  that  which 
serves  as  an  instrumentality  toward  meeting  a 
want  is  utilized.  Therefore  the  term  that  has  been 
generally  adopted  to  signify  any  thing  or  any 
service  utilized  is  a  ** utility."  Anything  that 
man  uses,  no  matter  how  large  or  how  small,  is  a 
utility.  An  aggregate  that  he  uses  is  a  utility: 
a  component  part  of  that  aggregate  which  he  uses 
is  a  utility.  A  thing  or  a  service  utilized  in  pro- 
duction is  a  utility,  and  a  thing  or  a  service  pro- 
duced is  a  utility.  Any  thing  or  service  that  man 
uses,  no  matter  for  what  purpose,  is  a  utility. 
That  is,  a  thing  or  a  service  used  because  it  is 
needed  is  a  ntility;  a  thing  or  a  service  used  be- 
cause of  the  gratification  it  affords  is  a  utility, 
whether  or  not  it  conduces  to  well-being. 

Industry  and  conmierce  have  to  do  with  the  pro- 


28  THE  FLOW  OF  VALUE 

duction  and  exchange  of  things  and  services  for 
the  purpose  of  satisfying  needs  or  gratifying  de- 
sires; that  is,  for  the  purpose  of  meeting  wants. 
Science  has  been  defined  as  organized  knowledge. 
The  science  of  economics  is  concerned  with  the 
organization  of  knowledge  that  pertains  to  the 
production  and  exchange  of  things  and  services. 
Thus  industry  and  commerce  in  the  concrete  and 
the  science  of  economics  in  the  abstract  are  con- 
cerned with  the  production  and  exchange  of  utili- 
ties. 

A  utility  for  which  another  utility  or  other 
utilities  are  or  can  be  obtained  is  an  **  economic 
utility."  Inasmuch  as  nearly  all  utilities  are  eco- 
nomic utilities,  the  term  utility  will  be  used 
throughout  this  volume,  as  a  rule,  in  the  sense  of 
an  economic  utility.  Where  distinction  or  em- 
phasis seems  desirable,  the  terms  utility  and  eco- 
nomic utility  will  be  used  in  their  strict  meaning ; 
in  other  cases  it  is  believed  that  the  context  will 
indicate  the  significance. 

Utilities  are  susceptible  of  different  classifica- 
tions from  different  standpoints.  They  may  be 
classified  as  beneficial  if  they  promote  human  wel- 
fare, as  deleterious  if  they  conduce  to  physical, 
mental,  or  moral  impairment. 

As  there  may  be  utilities  in  the  form  of  force 
and  utilities  in  the  form  of  matter,  there  may  be 
a  broad  distinction  between  ** matter-utilities"  and 


UTILITY  AND  UTILITIES  29 

"force-utilities."  Matter-utilities  are  measured 
by  units  of  area,  length,  and  weight,  number  and 
quantity.  The  significance  of  these  units  is 
heightened  when  there  is  indication  not  only  of 
the  kind  but  of  the  quality  of  matter-utilities  by 
which  they  are  measured.  For  example,  a  bushel 
measure  indicates  a  receptacle  that  will  hold  a 
certain  quantity;  a  bushel  of  wheat  indicates  a 
definite  measure  of  a  specified  commodity;  a 
bushel  of  No.  1  Northern  wheat  indicates  a  definite 
measure  of  a  specified  commodity  of  a  specified 
quality.  External  force  applied  by  man  is  meas- 
ured by  such  units  as  foot-pounds,  horse-power, 
the  kilowatt-hour.  Force  in  the  form  of  human 
effort  may  be  measured  by  its  application  during 
a  period  of  time — an  hour,  a  day,  a  week,  a  month, 
a  year.  The  significance  of  such  measurement  is 
heightened  by  indication  of  the  quality  of  the  ef- 
fort. For  example,  a  week 's  work  of  a  first  class 
carpenter  is  more  effective  than  that  of  an  ap- 
prentice. Or  it  may  be  measured  by  the  result 
immediately  traceable  to  its  exertion;  for  ex- 
ample, in  simple  physical  manifestation  by  the 
pound  of  cotton  picked;  in  physical  and  mental 
manifestation  by  the  number  of  pages  typewrit- 
ten; in  mental  and  emotional  manifestation  by 
the  quality  of  a  picture,  a  manuscript,  of  the  de- 
livery of  an  address,  of  the  performance  of  a  mu- 
sical composition,  or  of  a  part  in  a  play.  A  meas- 
ure of  human  force  is  also  afforded  by  the  results 


80  THE  FLOW  OF  VALUE 

traceable  to  the  effort  of  the  brain  in  coordinating 
the  application  of  human  effort  and  cosmic  force. 
For  example,  there  may  be  two  mills  with  exactly 
the  same  equipment  and  yet  the  manager  of  one, 
by  the  skilful  handling  of  men,  substance,  and 
machinery,  may  produce  a  greater  output  in  a 
given  time  than  the  other,  or  an  equal  output  with 
fewer  employees.  Under  skilful  management  a 
factory,  a  department  store,  a  hotel,  a  railroad 
may  be  operated  at  a  profit,  although  under  less 
efficient  management  a  loss  would  be  incurred. 
Thus  the  mental  effort  which  conceives,  designs, 
guides,  and  directs  is  certainly  of  higher  im- 
portance than  the  force  which  it  applies  or  the 
matter  to  which  it  is  applied. 

The  classification  of  matter-utilities  that  will  be 
most  serviceable  in  this  discussion  is  into  final 
utilities,  sources  of  substance,  substance,  inter- 
mediate utilities,  and  instruments  of  production. 

Utilities  which  through  immediate  use  or  con- 
sumption directly  minister  to  physical  or  mental 
wants  of  the  individual  may  be  designated  as 
** final  utilities."  Of  such  are  food,  clothing,  shel- 
ter, books,  pictures,  pergonal  service.  With  the 
exception  of  food,  such  utilities  are  susceptible  of 
utilization  throughout  varying  periods  and,  there- 
fore, each  measure  of  satisfaction  afforded  is  a 
utility.  Such  a  utility  was  an  economic  utility 
when  the  owner  obtained  it  in  exchange.    It  con- 


UTILITY  AND  UTILITIES  31 

tinues  to  be  an  economic  utility  as  long  as  other 
utilities  can  be  obtained  in  exchange  for  it.  Each 
measure  of  satisfaction  afforded  is  an  economic 
utility  if  other  utilities  can  be  obtained  in  exchange 
for  it.  For  example,  the  right  to  utilize  a  dwell- 
ing may  be  disposed  of  for  a  year,  of  a  room  for  a 
week,  of  a  bed  in  a  lodging  house  for  a  night. 

Utilities  from  which  utilities  in  the  form  of  sub- 
stance are  gathered  or  extracted  for  transforma- 
tion may  be  classified  as  ** sources  of  substance." 
Of  such  are  farms,  forests,  and  mines. 

Utilities  composed  of  forms  of  matter  extracted 
from  or  growing  out  of  the  lands  and  waters  that 
are  suitable  for  transformation  into  other  utilities 
may  be  classified  as  *' substance. "  Of  such  are 
timber,  grain,  and  minerals,  cotton  and  flax,  the 
animals  whose  flesh  is  transformed  into  food, 
and  covering  into  clothing  and  other  forms  of 
use. 

Utilities  in  the  form  of  substance  in  one  or  an- 
other stage  of  transformation  may  be  classified  as 
** intermediate  utilities."  Of  such  are  flour,  wool, 
leather,  logs,  and  ingots. 

Utilities  which  do  not  directly  minister  to  the 
wants  of  the  individual  but  are  utilized  in  the  pro- 
duction of  other  utilities  may  be  classified  as  *' in- 
struments of  production."  Of  such  are  struc- 
tures, machines,  and  appliances.  Each  measure 
of  matter  and  each  measure  of  force  flowing  from 
their  utilization  may  be  a  utility. 


32  THE  FLOW  OF  VALUE 

In  the  light  of  these  definitions  we  perceive  that 
all  the  activity  outlined  in  the  first  chapter  is  ex- 
erted in  the  production  of  utilities.  Instant  by 
instant,  there  is  the  transmutation  of  force  and 
the  transformation  of  matter  in  every  phase  of  the 
production  of  all  kinds  of  utilities.  Every  phase 
and  stage  of  production  requires  time  that  varies 
with  utilities  of  different  kinds.  Existing  utili- 
ties have  been  produced  by  the  application  of  force 
to  matter  in  the  past.  The  application  of  force 
to  them  in  the  present  results  in  the  production 
of  utilities  in  the  future.  To  these  future  utilities 
force  may  be  applied  in  the  production  of  utilities 
for  use  in  the  more  remote  future,  and  so  on  in 
unending  series. 

Utilities  are  produced  and  are  consumed,  but 
that  which  constitutes  a  utility  can  not  come  from 
nothing  and  can  not  pass  into  nothing.  As  a  util- 
ity is  used  and  consumed,  it  disintegrates  and  is 
resolved  again  into  elements  of  matter  and  force. 
Utilities  in  the  form  of  food  pass  out  of  existence 
as  utilities  when  they  are  consumed,  but  their  con- 
sumption promotes  vitality.  Human  effort  arises 
from  vitality.  Human  effort  becomes  a  utility 
when  exerted  in  the  production  of  future  utilities. 

In  all  utilities  there  is  property.  If  every  per- 
son could  provide  all  of  the  utilities  that  meet  his 
wants  entirely  and  exclusively  through  the  exer- 
tion of  his  own  efforts,  he  might  have  property  in 
utilities  utilized  in  such  production  and  in  the 


UTILITY  AND  UTILITIES  33 

utilities  produced,  but  there  would  -be  no  transfer 
of  property. 

Inasmuch  as  all  persons  engaged  in  production 
are  continually  providing  utilities  that  other  per- 
sons use,  it  follows  that  there  must  be  continual 
transfer  of  property  in  order  that  utilities  may 
come  into  the  possession  of  those  whose  wants 
they  serve,  or  of  those  who  utilize  them  toward 
serving  wants.  Obviously  there  must  be  some 
means  for  effecting  this  transfer,  of  exchanging 
utilities  of  the  past,  the  present,  and  the  future. 


IV 


THE   EXCHANGE   OF  ITTH.ITIES  AND   THE 
UNIT  OF  EXCHANGE 

Inasmuch  as  every  person  is  dependent  upon 
the  efforts  of  others  for  the  maintenance  of  a 
civilized  existence,  one  who  renders  no  return  for 
the  benefits  he  receives  certainly  leads  a  selfish 
life,  and  selfishness  is  universally  condemned.  It 
is  the  precept  of  philosophy  and  religion  that  each 
person  do  as  much  as  he  can  for  others.  If  every 
person  does  as  much  as  he  can  for  others,  every 
person  is  contributing  to  the  benefit  of  others  in 
the  fullest  measure  that  is  possible  for  him.  This 
means  that  as  a  person  is  contributing  to  the  ben- 
efit of  others,  they  are  contributing  to  his  benefit : 
there  is  an  exchange  of  benefits. 

It  was  not,  however,  because  of  precept  of  phi- 
losopher or  priest  that  the  exchange  of  the  results 
of  efforts  began.  Primitive  man,  in  common  with 
the  lower  animals,  was  obliged  to  look  out  for  him- 
self. He  took  what  he  wanted,  when  and  where 
he  found  it.  Selfishness  necessarily  was  of  the 
essence  of  his  nature,  tempered  by  the  need  and 
the  developing  desire  to  care  for  his  family.  Thus 
it  was  that  things  were  owned  in  common  by  a 

34 


THE  EXCHANGE  OF  UTILITIES  35 

family,  and  as  the  family  developed  into  the  tribe 
things  were  owned  in  common  by  the  tribe.  This 
was  the  state  of  self-sufficiency.  When  a  tribe  had 
more  things  of  a  kind  than  it  wanted,  the  patriarch 
was  not  prompted  to  give  of  the  abundance  to 
another.     Tribes  were  then  more  inclined  to  fight. 

But  in  the  long  course  of  time  it  was  found  that 
when  one  tribe  had  more  things  of  a  kind  than  it 
wanted  and  another  had  more  things  of  a  kind 
than  it  wanted,  each  could  benefit  by  the  exchange 
of  its  surplus.  As  the  tribal  relation  dissolved, 
exchange  developed  between  individuals.  Ex- 
change served  a  selfish  end  in  that  each  obtained 
something  he  wanted:  it  served  an  altruistic  end 
in  that  each  rendered  to  the  other  something  he 
wanted. 

There  can  not  be  the  exchange  of  utilities  un- 
less each  party  has  that  which  the  other  wants. 
Thus  in  economic  parlance  **want"  signifies  not 
only  that  a  person  desires  a  thing  but  that  he  has 
that  in  exchange  for  which  it  may  be  obtained. 
This  excludes  want  in  the  sense  of  desire  for  a 
thing  which  may  be  unattainable.  Similarly  in 
economic  parlance  ''demand"  signifies  the  offer- 
ing of  that  in  return  for  which  that  which  meets 
a  want  may  be  obtained.  This  excludes  demand 
in  such  a  sense  as  that  of  the  highwayman  who  de- 
mands that  a  traveler  give  his  purse.  Therefore 
throughout  this  volume  ''want"  will  be  used  in  the 
sense  of  potential  "demand." 


S6  THE  FLOW  OF  VALUE 

It  is  a  principle  rooted  in  human  nature  that 
in  an  exchange  each  person  yields  as  little  as  he 
can  in  return  for  that  which  he  acquires — each 
person  seeks  to  obtain  as  much  as  he  can  in  return 
for  that  with  which  he  parts.  This  gives  rise  to 
bargaining.  Men  seek  to  obtain  that  which  they 
want,  from  him  who  will  accept  the  least  in  ex- 
change for  it;  men  seek  to  dispose  of  that  with 
which  they  are  willing  to  part,  to  him  who  will 
yield  the  most  in  return  for  it.  Therefore  this  un- 
derlying principle  also  gives  rise  to  competition; 
or,  rather,  bargaining  and  competition  are  cor- 
relative. 

Bargaining  serves  a  selfish  end  in  that  it  tends 
to  each  parting  with  the  least  and  receiving  the 
most  he  can.  It  also  serves  an  altruistic  end  in 
that  it  tends  to  each  rendering  to  the  other  the 
largest  measure  of  that  which  he  wants  in  return 
for  the  smallest  measure  of  that  with  which  he  will 
part. 

Demand  for  utilities  leads  men  to  supply  utili- 
ties. Each  must  supply  that  for  which  there  is 
demand  in  order  that  he  may  obtain  that  which  he 
demands  himself. 

The  form  and  functions  of  the  body  developed 
before  there  was  a  pronounced  advance  in  the 
growth  of  the  mind.  Therefore  the  earliest  hu- 
man effort  was  that  of  the  body  directed  by  a  rudi- 
mentary intelligence.    As  food  is  the  primary  ne- 


THE  EXCHANGE  OF  UTILITIES  37 

cessity  to  animate  existence,  effort  was  instinct- 
ively put  forth  in  procuring  food.  First  man 
hunted;  then  he  domesticated  animals  and  tilled 
the  soil.  By  slow  degrees  he  learned  to  make 
tools  and  to  make  things  with  tools.  For  ages 
self-sufficiency  enveloped  the  family  and  the  tribe. 
The  industry  and  commerce  of  the  western  world 
evolved  out  of  the  self-sufficiency  of  the  medieval 
communities. 

There  emerged  from  the  tillers  of  the  soil  the 
artisan,  who  went  from  house  to  house,  working 
the  substance  furnished  by  his  patron  into  the 
forms  desired.  His  effort  was  applied  in  ex- 
change for  the  food  and  clothing  also  provided  by 
his  patron;  that  is,  he  was  paid  "in  kind."  Then 
evolved  the  craftsman,  who  worked  in  his  own 
shop  with  his  own  tools  and  supplied  the  substance 
which  he  wrought  into  the  form  desired  by  his 
customers.  Then  craftsmen  came  to  make  wares 
in  excess  of  those  for  which  they  had  definite  or- 
der and  took  them  to  the  fairs.  Then  traders 
bought  wares  from  the  craftsmen  for  sale  at  the 
fairs  and  elsewhere.  Then,  whether  craftsmen 
employed  a  factor  to  sell  the  wares  they  produced, 
or  whether  a  trader  employed  craftsmen  to  pro- 
duce the  wares  he  sold,  there  evolved  the  mer- 
chant with  a  fixed  place  of  business. 

Although  the  medieval  wares  were  of  no  great 
variety,  as  the  number  of  producers  and  the  num- 
ber of  purchasers  increased  there  came  to  be  some- 


38  THE  FLOW  OF  VALUE 

thing  like  definiteness  in  the  ratios  in  which  things 
of  one  kind  were  exchanged  for  things  of  another 
kind. 

In  every  exchange  each  party  renders  utilities 
to  the  other  in  exchange  for  the  utilities  he  re- 
ceives. Thus  he  sells  the  utilities  with  which  he 
parts  and  is  paid  for  them.  Likewise  he  buys  the 
utilities  he  receives  and  pays  for  them.  Ob- 
viously there  must  be  a  term  to  designate  that 
which  is  paid  and  that  which  is  received.  This  is 
price. 

Price  is  that  paid  for  a  utility  when  it  is  bought, 
or  obversely  that  which  is  received  for  a  utility 
when  it  is  sold.  Therefore  the  price  of  a  utility 
cannot  be  indicated  in  terms  of  that  utility.  It 
must  be  indicated  in  terms  of  that  for  which  it  is 
bought  or  for  which  it  is  sold. 

When  there  is  the  coincident  transfer  of  prop- 
erty in  utilities,  the  price  of  each  utility  is  that  of 
the  other.  If  property  in  a  utility  of  one  kind  be 
exchanged  for  property  in  a  dozen  utilities  of  an- 
other kind,  the  price  of  the  dozen  utilities  of  the 
one  kind  is  the  one  utility  of  the  other  kind,  and 
the  price  of  the  utility  of  the  one  kind  is  the  dozen 
utilities  of  the  other. 

When  utilities  of  one  kind  are  exchanged  di- 
rectly for  utilities  of  another  kind,  each  party  ob- 
tains at  once  that  which  he  wants  in  return  for 
that  with  which  he  parts.  But  if  a  person  have 
utilities  and  another  person  wants  them  but  does 


THE  EXCHANGE  OF  UTILITIES  S9 

not  have  utilities  which  their  owner  will  accept,  he 
must  render  in  exchange  that  for  which  he  can 
obtain  from  whosoever  may  have  them  the  utili- 
ties he  does  want.  Thus  there  must  be  an  inter- 
mediary of  exchange. 

Such  an  intermediary  at  first  was  a  thing  of 
usefulness  in  itself,  of  such  universal  usefulness 
that  it  could  be  disposed  of  at  any  time  by  any 
person  in  exchange  for  anything  he  might  want, 
and  would  be  accepted  at  any  time  by  any  person 
in  return  for  that  with  which  he  wanted  to  part. 
Of  such  things  were  the  cattle  of  the  Greeks,  the 
tobacco  of  the  early  American  settlers.  Because 
of  their  durability,  portability,  and  divisibility, 
the  metals  came  generally  to  be  adopted  as  the 
media  of  exchange.  Gold  and  silver  tended  to 
displace  the  other  metals  for  this  purpose,  and 
hence  to  be  designated  the  precious  metals.  In 
order  that  there  might  be  known  just  what  meas- 
ure of  metal  passed  from  one  to  another,  the  met- 
als were  transformed  into  coins  that  were  pre- 
scribed to  be  of  definite  weight  and  quality. 

Then  it  came  about  that  coins  were  sought  by 
many  apparently  for  no  other  purpose  than  to 
possess  them.  The  acquisitive  instinct  found  ex- 
pression in  acquiring  coins.  But  that  which  gave 
coins  their  general  usefulness  was  the  fact  that 
any  thing  or  any  service  could  be  obtained  for 
them.  Therefore  it  was  that  a  coin  of  a  given 
weight  and  fineness  became  the  unit  of  exchange. 


40  THE  FLOW  OF  VALUE 

A  certain  number  or  quantity  of  utilities  of  each 
kind  could  be  obtained  in  exchange  for  a  coin, 
which  is  the  same  as  to  say  that  a  coin  could  be 
obtained  in  exchange  for  a  certain  number  or 
quantity  of  utilities.  Thus  this  number  or  quan- 
tity of  utilities  of  a  respective  kind  had  the  ex- 
change ratio  of  the  unit  of  exchange.  This  num- 
ber or  quantity  was  exchangeable  for  the  coin 
which  was  the  concrete  embodiment  of  the  unit  of 
exchange.  The  coin  in  turn  was  exchangeable 
for  that  measure  of  utilities  of  another  kind  which 
had  the  exchange  ratio  of  the  unit  of  exchange. 
Therefore  it  essentially  was  that  the  measure  of 
utilities  of  one  kind,  which  had  the  exchange  ratio 
of  the  unit  of  exchange,  was  exchangeable  for  the 
measure  of  utilities  of  another  kind,  which  had 
the  exchange  ratio  of  the  unit  of  exchange.  Were 
there  not  a  unit  of  exchange,  there  would  have  to 
be  a  tabulation  of  the  ratios  in  which  utilities  of 
each  kind  were  exchangeable. 

It  is  obvious  that  any  one  of  a  variety  of  units 
may  serve  to  indicate  these  exchange  relations. 
Just  as  linear  relation  to  space  may  be  measured 
by  such  different  units  as  the  yard,  the  meter,  the 
verst,  so  also  may  the  relation  of  utilities  from 
the  standpoint  of  exchange  be  indicated  by  such 
different  units  as  the  pound  sterling,  the  franc, 
the  mark,  the  florin,  the  ruble,  the  peseta,  the 
dollar.  Naturally  the  unit  of  exchange  in  general 
use  by  a  given  people  is  that  which  will  indicate 


THE  EXCHANGE  OF  UTILITIES  41 

the  respective  measures  of  utilities  that  most 
frequently  enter  into  exchange.  For  example,  in 
China  when  exchanges  were  in  small  quantities  the 
''cash"  was  the  unit;  in  Great  Britain  where  a 
great  variety  of  utilities  enter  into  exchange  and 
in  larger  volume  the  pound  sterling  is  the  unit. 
Or,  aS  there  may  be  the  transfer  of  property  in 
large  or  small  measures  of  utilities,  there  may  be 
a  unit  to  which  a  less  and  another  unit  to  which 
a  greater  measure  of  utilities  may  have  the  ratio 
of  exchange.  For  example,  in  Great  Britain  there 
is  the  shilling  as  well  as  the  pound  sterling.  In 
fractions  or  multiples  of  any  unit  of  exchange  may 
be  expressed  the  exchange  relativity  of  any  num- 
ber or  quantity  of  any  utility.  In  the  United 
States  the  unit  of  exchange  is  the  dollar. 

It  is  to  be  emphasized  that,  as  the  unit  of  ex- 
change indicates  the  measure  of  utilities  of  each 
kind  which  has  the  exchange  ratio  of  that  unit,  it 
indicates  the  measures  in  which  utilities  of  all 
kinds  are  exchangeable,  those  of  one  kind  for  those 
of  another  kind.  Thus  while  the  term  that  desig- 
nates the  unit  of  exchange  is  the  designation  of  a 
coin,  it  is  also  the  designation  of  the  relativity  of 
utilities  in  exchange.  Thus  the  unit  of  exchange 
is  the  designation  of  respective  measures  of  re- 
spective utilities  that  are  exchangeable,  one  for 
another.  Therefore  the  coin  tends  to  disappear 
as  an  intermediary,  and  the  unit  of  exchange  comes 


42  THE  FLOW  OF  VALUE 

not  in  actuality  to  be  based  upon  coin,  but  upon 
the  utilities  that  are  bought  and  sold.  This  ten- 
dency is  perceptible  throughout  an  evolution  not 
as  yet  consummated. 

The  first  stage  in  this  evolution  was  attained 
when  in  the  course  of  time  the  actual  transfer  of 
coins  came  in  large  measure  to  be  obviated  as  their 
use  was  supplemented  by  government  notes  and 
bank  notes.  Such  an  instrument  is  a  promise  to 
pay  coin,  and  thus  it  may  be  used  instead  of  coin 
as  an  intermediary  of  exchange.  But  as  the  desig- 
nation of  a  coin  is  also  an  indication  of  the  unit 
to  which  utilities  have  an  exchange  ratio,  a  govern- 
ment note  or  a  bank  note,  aside  from  its  correla- 
tion with  coin,  facilitates  the  transfer  of  property 
in  utilities  in  that  it  may  pass  from  one  to  another 
in  an  indefinite  series  of  exchanges  without  being 
redeemed  in  coin. 

Then  in  the  longer  course  of  time  it  was  found 
that  exchanges  could  be  effected  by  debit  entries 
and  credit  entries  on  the  books  of  banks  in  accord- 
ance with  the  amounts  specified  in  written  instru- 
ments. Such  instruments  include  checks,  drafts, 
bills  of  exchange,  and  acceptances.  They  are  ex- 
pressed in  terms  of  the  units  that  designate  coin 
and  that  therefore  also  indicate  the  exchange  ra- 
tios of  utilities.  Their  essential  function,  aside 
from  any  correlation  with  coin  or  the  metals  of 
which  coin  is  made,  is  to  facilitate  the  transfer  of 


THE  EXCHANGE  OF  UTILITIES  43 

property  in  utilities  in  accordance  with  their  ex- 
change relativity,  which  less  and  less  depends  upon 
any  relation  of  utilities  to  coin.  Coin,  govern- 
ment notes,  and  bank  notes  are  designated  as  cur- 
rency because  they  flow  as  a  current  from  any 
person  to  any  other  person.  Bank  credit,  and  the 
instruments  in  accordance  with  which  it  is  trans- 
ferred, are  not  currency,  because  the  flow  is  from 
a  designated  person  to  a  designated  person.  The 
more  readily  utilities  or  the  instruments  by  means 
of  which  property  in  them  is  transferred  flow  in 
the  currents  of  exchange,  the  greater  is  their 
liquidity. 

There  can  not  be  the  transfer  of  property,  that 
is,  there  can  not  be  buying  and  selling,  without  at 
least  two  persons  being  concerned,  he  from  whom 
the  property  passes  and  he  by  whom  it  is  received. 
If,  at  the  time  A  transfers  property  in  certain 
utilities  to  B,  B  in  turn  transfers  property  in 
other  utilities  to  A,  the  results  of  effort  owned  by 
A  have  been  exchanged  for  the  results  of  effort 
owned  by  B,  and  the  transaction  is  complete. 

If,  at  the  time  of  the  transfer  of  property  in 
utilities  from  A  to  B,  the  latter  made  payment  in 
coin,  bank  notes,  or  government  notes,  the  trans- 
action, in  a  sense,  would  also  be  complete,  because 
A  could  immediately  exchange  the  currency  for 
other  utilities.    Or  he  could  retain  it  in  his  posses- 


44  THE  FLOW  OF  VALUE 

sion  for  future  exchange,  or,  as  banks  developed, 
he  might  deposit  it  in  a  bank,  where  it  would  be 
placed  to  his  credit. 

The  word  credit  has  several  meanings  and 
shades  of  meaning.  Its  underlying  significance  is 
positive  not  negative.  When  it  is  said  of  a  man, 
**It  is  to  his  credit  that  he  is  upright  and  honest," 
or,  "He  is  entitled  to  credit  for  having  done  this 
or  that,"  positive  qualities  or  positive  perform- 
ance is  implied.  **He  is  credited  with  this  or 
that,"  implies  recognition  of  positive  perform- 
ance. This  leads  to  the  significance  of  credit  in 
commerce  as  that  which  has  been  obtained,  that 
which  may  be  used  or  disposed  of.  It  also  signi- 
fies return  which  is  due  for  property  that  has  been 
transferred.  Thus,  for  example,  if  A  have  prop- 
erty in  a  dozen  cattle,  the  cattle  are  to  his  credit. 
If  he  dispose  of  the  cattle  for  240  dollars  in  coin, 
government  notes,  or  bank  notes,  the  currency  is 
to  his  credit.  If  he  deposit  the  currency  in  a  bank 
it  is  placed  to  his  credit.  He  can  use  or  dispose 
of  that  which  is  placed  to  his  credit.  Therefore, 
that  which  is  to  his  credit  is  command  over  util- 
ities. Credits  in  the  form  of  coins,  government 
notes,  bank  notes,  or  credit  entries  on  the  books  of 
a  bank  is  immediately  utilizable  command  over 
utilities.  Their  owner  can  expend  them  in  any 
proportions  for  any  utilities  he  may  want.  Prop- 
erty in  other  utilities  must  be  transmuted  into 
such  credits  before  it  is  so  utilizable. 


THE  EXCHANGE  OF  UTILITIES  46 

A  debt  is  that  which  is  due  for  property  in  util- 
ities that  has  been  transferred,  but  in  return  for 
which  there  has  not  been  an  immediate  transfer  of 
property  in  other  utilities.  In  general  usage, 
when  there  has  been  such  a  transaction  the  pur- 
chaser is  said  to  have  obtained  the  property  **on 
credit."  A  better  expression  is  that  he  has  ob- 
tained the  property  **on  trust,"  because  trust 
that  he  will  make  payment  is  reposed  in  him. 
If  he  has  an  established  reputation  for  paying  for 
that  which  he  purchases,  it  is  said  that  his  **  credit 
is  good."  A  purchase  on  trust  means  that  a  debit 
has  been  incurred  by  the  purchaser.  For  exam- 
ple, if,  when  A  disposed  of  the  dozen  cattle  to  B, 
the  latter  did  not  make  immediate  payment,  he 
would  be  in  the  debt  of  A  in  the  amount  of  240 
dollars.  The  significance  of  debt  is  negative.  It 
implies  the  receiving  of  that  in  return  for  which 
the  positive  must  be  forthcoming.  A  credit  is 
required  to  balance  a  debit. 

Every  transfer  of  property  involves  credit  and 
debit.  Every  commercial  transaction  gives  rise 
to  debit  for  that  which  is  obtained,  and  to  credit 
for  that  which  is  transferred.  Debits  and  credits 
are  in  terms  of  the  units  of  exchange.  Utilities 
received  which  give  rise  to  debit  may  be  utilized 
in  the  production  of  future  utilities  which  give 
rise  to  credit.  Then  again,  utilities  which  have 
given  rise  to  a  debit  may  be  used  and  consumed 
before  there  is  the  production  of  utilities  that 


46  THE  FLOW  OF  VALUE 

balance  the  credit  to  him  from  whom  they  were 
obtained.  A  credit  means  that  utilities  have  been 
produced  and  property  in  them  transferred.  A 
debit  means  that  utilities  must  be  forthcoming 
and  property  in  them  transferred. 

A  man  may  keep  account  with  anything  in 
which  he  has  property,  debiting  it  with  that  which 
he  puts  into  it  and  crediting  it  with  that  which  he 
takes  out  of  it.  Thus  A  may  have  debited  the 
dozen  cattle  with  all  of  the  food  and  care  given 
them,  and  finally  credited  them  with  the  240  dol- 
lars received  for  them.  i 

This  240  dollars  definitely  indicates  the  ratio 
at  which  the  cattle  were  exchanged;  that  is,  the 
dozen  cattle  were  of  the  exchange  ratio  of  240 
dollars.  In  this  sense  dollars  indicate  utilities, 
not  something  separate  and  distinct  from  utilities. 
As  we  have  learned,  the  first  intermediary  of  ex- 
change was  something  separate  and  distinct  from 
the  utilities,  the  transfer  of  property  in  which 
was  effected  by  means  of  it.  That  is,  the  in- 
termediary of  exchange  was  itself  a  concrete  util- 
ity. When  metals  were  used  they  were  also  con- 
crete utilities  exchanged  for  concrete  utilities. 
In  the  form  of  coins  they  continued  to  be  utilities, 
but  their  usefulness  as  coins  came  to  outweigh 
their  usefulness  as  concrete  utilities  in  other  ways. 
The  use  of  bank  notes  and  government  notes  was 
a  step  toward  the  interchange  of  debits  and  cred- 
its without  resort  to  coin.     The  use  of  debit  en- 


THE  EXCHANGE  OF  UTILITIES  17 

tries  and  credit  entries  on  the  books  of  banks 
marks  the  exchange  of  utilities  without  a  concrete 
utility  as  an  intermediary  of  exchange.  But  bank 
credit,  although  not  a  concrete  utility,  is  a  utility, 
in  that  it  may  be  exchanged  for  utilities  and  util- 
ities may  be  exchanged  for  it.  It  is  a  record  of 
utilities  that  have  been  sold  for  which  other  util- 
ities are  due  in  return.  The  unit  of  exchange 
that  once  was  a  defieite  measure  of  a  concrete 
utility  now  becomes  a  unit  of  measurement  of 
utilities  in  their  relation  of  exchange,  just  as  a 
yard  is  a  unit  of  measurement  of  linear  relation 
to  space,  and  a  pound  is  a  unit  of  measurement 
of  relation  to  the  force  of  gravity. 

The  evolution  of  the  mechanism  by  means  of 
which  property  in  utilities  is  transferred  makes 
clear  that  at  this  time  the  essential  significance 
of  the  dollar  is  not  of  something  separate  and  dis- 
tinct from  the  utilities  that  are  exchanged,  any 
more  than  a  yard  or  a  pound  is  something  separate 
and  distinct  from  the  forms  of  matter  measured 
by  these  units.  Inasmuch  as  a  yard  or  a  pound 
may  be  applied  in  the  measurement  of  different 
kinds  of  matter,  we  can  speak  of  yards  or  pounds 
without  definite  specification  of  particular  forms 
of  matter.  So  also,  as  the  dollar  is  the  unit  by 
which  utilities  of  any  kind  are  measured  from  the 
standpoint  of  the  exchange  of  property  in  them, 
we  can  speak  of  dollars  without  definite  specifi- 
cation of  particular  utilities.    When,  however,  we 


48  THE  FLOW  OF  VALUE 

thus  speak  of  yards  or  pounds  there  is  implied 
reference  to  forms  of  matter.  So  also,  when  we 
thus  speak  of  dollars  there  is  implied  reference  to 
utilities.  There  can  not  be  yards  or  pounds  of 
intangible  space,  and  in  this  sense  there  can  not 
be  dollars  except  as  measures  of  definite  utilities 
in  their  relation  of  exchange. 

There  is,  however,  a  radical  difference  between 
the  yard  and  the  pound  as  jinits  of  measurement 
of  tangible  things,  and  the  dollar  as  a  unit  of  meas- 
urement of  definite  utilities  from  the  standpoint 
of  exchange.  As  a  rule,  there  is  a  constant  re- 
lation of  a  given  quantity  of  matter  to  the  unit 
by  which  it  is  measured  as  a  form  of  matter,  but 
there  is  not  a  constant  relation  of  a  utility  to 
the  unit  by  which  it  is  measured  from  the  stand- 
point of  exchange.  The  ratio  of  a  utility  to  the 
unit  of  exchange,  that  is,  the  measure  of  a  utility 
which  will  exchange  for  respective  measures  of 
other  utilities,  is  determined  by  concurrence  be- 
tween the  different  minds  of  different  men.  Be- 
cause of  various  promptings  of  the  different  minds 
of  different  men  a  given  measure  of  utilities  of  a 
given  kind  may  bear  at  one  time  or  place  a  higher 
or  lower  ratio  to  the  dollar  than  at  another  time 
or  place,  and  thus  respective  measures  of  utili- 
ties of  different  kinds  may  bear  at  one  time  or 
place  a  higher  or  a  lower  ratio  to  the  dollar  than 
at  another  time  or  place.  Therefore  the  unit  of 
exchange  is  a  shifting  unit. 


THE  EXCHANGE  OF  UTILITIES  49 

The  dollar  is  the  nexus  at  a  given  time  or  place 
of  the  ratios  borne  by  respective  measures  of 
respective  utilities  one  to  another,  each  to  the 
others,  from  the  standpoint  of  the  exchange  of 
property  in  them  at  that  time  and  place.  More- 
over, as  it  is  in  terms  of  the  dollar  that  he  who 
sells  utilities  at  one  time  may  receive  payment 
at  another,  and  he  who  sells  utilities  at  one  place 
may  receive  payment  at  another,  the  dollar  is 
the  nexus  of  the  exchange  ratios  of  respective 
utilities  at  different  times  and  different  places. 

As  the  dollar  thus  focuses  the  exchange  ratios 
of  utilities  of  all  kinds,  it  is  the  nexus  of  prices. 
For  example,  when  we  say  that  the  price  of  a 
dozen  eggs  is  fifty  cents,  of  a  pair  of  gloves  one 
dollar,  of  a  yard  of  carpet  one  dollar  and  a  quar- 
ter, of  a  week's  work  fifteen  dollars,  of  a  set  of 
furniture  twenty-five  dollars,  of  an  acre  of  land 
two  hundred  dollars,  of  a  steam  engine  one  thou- 
sand dollars,  we  mean  that  the  ratios  of  these 
measures  of  these  utilities  to  the  dollar  is  respec- 
tively as  one  to  one-half,  one  to  one,  one  to  one  and 
a  quarter,  one  to  fifteen,  one  to  twenty-five,  one 
to  two  hundred,  and  one  to  one  thousand.  The 
nexus  of  the  prices  of  these  utilities  is  thus  indi- 
cated aside  and  apart  from  actual  buying  and 
selling. 

Larger  or  smaller  measures  of  a  utility  than 
that  which  has  the  ratio  of  one  dollar  may  have 
the  same  proportionate  ratio  or  they  may  have  a 


60  THE  FLOW  OF  VALUE 

less  or  greater  ratio.  For  example,  it  may  be 
that  with  eggs  at  fifty  cents  a  dozen,  one  half 
dozen  could  be  obtained  for  twenty-five  cents  or 
perhaps  the  dealer  would  ask  thirty  cents.  It 
may  be  that  of  gloves  at  a  dollar  a  pair,  a  half- 
dozen  pairs  could  be  obtained  for  six  times  one 
dollar  or  perhaps  for  five  dollars.  As  the  unit  of 
exchange  is  the  measure  of  price,  it  is  in  terms 
of  the  dollar  that  demand  is  expressed  and  in 
terms  of  the  dollar  that  supply  is  expressed. 

The  preceding  chapters  have  developed  that 
the  life  of  civilization  depends  upon  the  exchange 
of  things  and  services,  upon  the  exchange  by  each 
person  of  the  results  of  his  efforts  in  return  for 
the  results  of  the  efforts  of  others.  As  the  things 
and  services  thus  exchanged  are  utilized  toward 
meeting  human  wants,  they  are  designated  as 
utilities.  Therefore,  the  life  of  civilization  de- 
pends upon  the  exchange  of  utilities,  that  is,  upon 
the  buying  and  selling  of  utilities.  To  this  ex- 
change, this  buying  and  selling,  is  requisite  a  unit 
of  exchange,  in  terms  of  which  may  be  indicated 
the  measure  of  a  utility  of  one  kind  that  is  ex- 
changeable for  a  measure  of  a  utility  of  another 
kind,  that  is,  the  measures  in  which  utilities  of 
different  kinds  are  exchangeable.  In  a  country 
where  there  is  no  hampering  governmental  re- 
striction upon  buying  and  selling,  these  exchange 
ratios  are  determined  through  bargaining  and 


THE  EXCHANGE  OF  UTILITIES  51 

competition.  It  is  now  necessary  to  trace  more 
definitely  the  sequence  of  cause  and  effect  in  de- 
termining these  exchange  ratios ;  that  is,  to  ascer- 
tain how  competitive  price  is  determined,  that 
is,  the  prices  for  sources  of  substance,  substance, 
intermediate  utilities,  instruments  of  production, 
and  final  utilities,  and  the  price,  designated  as 
wage,  which  is  paid  for  human  effort. 

As  every  thing  or  service  that  has  price  is  a 
utility,  and  as  the  purpose  of  all  utilities  is  to 
meet  human  wants  or  to  be  utilized  toward  meet- 
ing human  wants,  and  as  all  utilities  that  are 
bought  and  all  utilities  that  are  sold  are  produced 
through  the  application  of  human  effort,  it  fol- 
lows that  prices  arise  from  the  relations  between 
effort  applied  in  producing  utilities,  and  the  wants 
which  are  met  by  the  utilities  produced.  The  pur- 
pose of  the  immediately  succeeding  chapters  is  to 
trace  these  relations  through  that  reaction  and  in- 
teraction which  results  in  prices. 


A   HYPOTHETICAL.  DEVELOPMENT   OP  PRICES   FOR 
FOODSTUFFS — THE   EMERGENCE   OF   PROFIT 

Among  whatever  people  there  has  been  the  de- 
velopment of  industry  and  commerce,  it  has  been 
interrupted  and  modified  by  changing  political 
and  social  conditions.  Even  if  adequate  data 
were  available,  an  exposition  of  the  actual  prog- 
ress from  the  dawn  of  history  or  even  from  the 
Crusades  would  require  hundreds  of  pages.  But 
throughout  the  tortuous  progress  each  stage  has 
been  determined  by  that  which  preceded  it,  and 
has  borne  a  determinate  relation  to  that  which 
succeeded  it.  An  understanding  of  the  produc- 
tion, buying,  and  selling  of  utilities  and  the  sig- 
nificance and  effect  of  that  production,  buying,  and 
selling  can  not  be  attained  except  through  a  trac- 
ing of  the  successive  phases.  There  are,  however, 
so  many  factors  in  the  industrial  and  commercial 
mechanism  of  to-day  that  it  would  be  confusing 
to  review  the  integral  development.  It  may  be 
better  to  lead  gradually  through  the  evolution  of 
the  various  factors  to  their  interelation.  The 
essential  development  and  essential  significance 

62 


PRICES  FOR  FOODSTUFFS  63 

may  be  unfolded  through  a  series  of  hypothetical 
illustrations. 

Let  us  begin  with  a  hypothetical  outline  of  an 
evolution  such  as  conceivably  might  have  been 
that  of  the  settlers  on  the  American  continent  had 
they  been  devoid  of  communication  with  Europe. 
As  it  was,  the  families  of  the  settlers,  especially 
in  the  interior,  were  very  nearly  self-suflficient,  the 
members  of  each  cultivating  for  themselves  land 
that  could  be  had  with  little  or  no  formality  and 
making  for  themselves  such  things  as  they  used. 

Because  of  differences  in  the  size  of  different 
families,  differences  in  the  characteristics  of  the 
soil  which  they  cultivated,  and  differences  in  their 
aptitude  and  application,  there  would  be  differ- 
ences in  the  quantities  and  qualities  of  the  re- 
spective things  produced  by  different  families. 
There  would  be  the  tendency  for  each  to  produce 
a  surplus  beyond  its  own  needs  of  that  which  it 
could  produce  to  the  best  advantage.  Thus  one 
family  might  have  an  advantage  in  raising  wheat 
and  converting  it  into  flour;  another,  in  raising 
potatoes ;  another,  in  raising  sheep.  There  would 
come  to  be  the-  exchange  of  flour  and  potatoes,  of 
flour  and  mutton,  of  mutton  and  potatoes.  At 
first  the  respective  proportions  in  which  such 
things  were  exchanged  would  probably  depend 
upon  the  relative  intensity  of  the  respective  de- 
sires ;  exchanges  would  probably  continue  through- 
out many  years  before  there  was  anything  like 


54  THE  FLOW  OF  VALUE 

definiteness  in  the  exchange  ratios.  But  in  the 
course  of  time  the  tendency  would  be  toward  ex- 
change in  the  measure  which  each  party  would 
accept  of  a  utility  of  one  of  those  kinds  rather 
than  produce  it  for  himself.  Thus,  consciously 
or  subconsciously,  there  would  be  recognition  of 
the  mutual  saving  of  effort. 

Thus  there  would  come  to  be  established  the 
ratio  in  which  a  utility  of  one  kind  would  be  ex- 
changed for  a  utility  of  another  kind.  Let  us 
suppose  it  came  to  be  that  a  sack  of  flour  was  ex- 
changed for  two  bushels  of  potatoes,  a  sack  of 
flour  for  ten  pounds  of  mutton,  and  two  bushels 
of  potatoes  for  ten  pounds  of  mutton.  Thus  a 
sack  of  flour,  two  bushels  of  potatoes,  and  ten 
pounds  of  mutton  would  be  the  exchange  ratios 
of  these  utilities,  that  is,  would  be  the  respective 
measures  in  which  the  utilities  of  the  respective 
kinds  would  be  exchanged,  those  of  one  kind  for 
those  of  another. 

If  every  transaction  were  the  coincident  ex- 
change of  a  utility  of  one  kind  for  a  utility  of  an- 
other kind,  no  intermediary  would  be  required. 
But  if  the  head  of  a  family  raising  flour  trans- 
ferred a  measure  of  flour  to  the  head  of  a  family 
raising  potatoes,  and  were  not  at  that  time  in 
need  of  potatoes,  but  did  want  mutton ;  or  if  for 
five  sacks  of  flour  he  might  want  four  bushels  of 
potatoes  and  thirty  pounds  of  mutton,  the  process 
of  exchange  would  not  be  so  simple. 


PRICES  FOR  FOODSTUFFS  66 

As  one  sack  of  flour,  two  bushels  of  potatoes, 
and  ten  pounds  of  mutton  had  the  same  exchange 
ratio,  any  one  of  these  respective  measures  of  a 
respective  utility  could  be  considered  the  unit  of 
exchange;  that  is,  such  a  particular  measure  of 
one  of  these  utilities  would  be  that  for  which  could 
be  obtained  the  respective  measure  of  another  of 
these  utilities.  Or  there  could  be  adopted  for  the 
unit  of  exchange  a  designation  that  would  not  need 
to  be  expressed  in  terms  of  flour,  or  of  potatoes, 
or  of  mutton.  Let  us  suppose  that  the  community 
arrived  at  once  at  the  conception  of  such  a  unit 
and  designated  it  a  ** dollar."  The  exchange  ratio 
of  flour  would  be  one  sack  to  one  dollar,  of  pota- 
toes two  bushels  to  one  dollar,  of  mutton  ten 
pounds  to  one  dollar. 

This  implies  that  this  community  arrived  at  the 
conception  of  a  unit  of  exchange  that  was  deter- 
mined by  the  exchange  ratios  of  utilities  and  not 
dependent  for  its  expression  upon  any  one  con- 
crete utility.  Moreover,  let  us  suppose  that  the 
community  from  the  beginning  effected  exchanges 
by  debits  and  credits  in  terms  of  this  unit  of 
exchange  without  the  use  of  a  concrete  unit  as  an 
intermediary.  In  accordance  with  these  suppo- 
sitions each  party  receiving  utilities  would  render 
to  the  other  a  certificate  specifying  the  number 
of  dollars  to  which  the  utilities  transferred  bore 
the  ratio  of  exchange.  If  the  producer  of  flour 
transferred  five  sacks  of  flour  to  the  grower  of 


56  THE  FLOW  OF  VALUE 

potatoes  he  would  receive  his  certificate  for  five 
dollars.  If  the  producer  of  flour  wanted  four 
bushels  of  potatoes  and  thirty  pounds  of  mutton, 
the  certificate  for  five  dollars  would  not  serve 
his  immediate  purpose  because  it  would  not  be 
so  divisible  that  he  could  pay  the  potato-grower 
two  dollars  and  the  mutton-raiser  three  dollars. 

Let  us,  therefore,  make  the  further  supposition 
that  the  community  advanced  to  the  conception 
of  a  record  of  transactions  on  which  the  certificate 
for  five  dollars  would  be  entered  to  the  credit  of 
the  seller  of  flour.  When  he  obtained  four  bushels 
of  potatoes  he  would  give  his  certificate  in  favor 
of  the  potato-grower  for  two  dollars  and  it  would 
be  entered  to  the  debit  of  the  flour-seller's  account 
on  the  record ;  and  when  he  obtained  thirty  pounds 
of  mutton  he  would  give  his  certificate  for  three 
dollars  in  favor  of  the  mutton-raiser,  which  would 
be  entered  to  the  debit  of  the  flour-seller's  ac- 
count. 

The  practice  of  the  debtor  giving  a  certificate 
at  the  time  of  each  purchase  and  the  creditor  de- 
positing that  certificate  would  result  in  all  trans- 
actions being  effected  by  means  of  certificates 
which  would  be  deposited  with  the  keeper  of  the 
record,  and  in  the  adjustment  of  all  transactions 
through  debit  entries  and  credit  entries  on  the  rec- 
ord. Each  certificate  entered  to  the  credit  of  a  de- 
positor would  certify  that  utilities  had  been  pro- 
duced and  transferred  by  him.    Each  certificate 


PRICES  FOR  FOODSTUFFS  67 

entered  to  the  debit  of  a  depositor  would  certify 
that  utilities  had  been  produced  by  another  and  re- 
ceived by  him.  Each  credit  entry  would  mean  that 
the  depositor  had  transferred  to  others  the  results 
of  efforts  having  the  exchange  ratio  of  the  dollars 
indicated.  Each  debit  entry  would  mean  that  the 
depositor  had  received  from  others  the  results  of 
efforts  having  the  exchange  ratio  of  the  dollars 
indicated.  The  entries  would  be  based  on  utilities 
actually  produced  and  transferred.  The  dollars 
of  entry  would  be  symbols  of  transactions;  the 
dollar  of  credit  a  symbol  of  utilities  produced  and 
sold,  the  dollar  of  debit  a  symbol  of  utilities  pro- 
duced and  received. 

The  continuity  of  transactions  would  give  rise 
to  entries  to  the  debit  and  to  the  credit  of  each 
depositor.  The  certificate  would  take  the  form 
of  an  order  on  the  keeper  of  the  record,  drawn  by 
one  depositor  in  favor  of  another.  It  would  be- 
come what  we  know  as  a  check,  and  the  place  of 
record  would  perform  a  function  of  what  we  know 
as  a  bank.  A  check  drawn  by  one  depositor  in 
favor  of  another  would  mean  that  he  had  received 
utilities  having  the  exchange  ratio  of  the  dollars 
indicated,  that  the  account  of  the  drawer  was  to  be 
debited  and  the  account  of  the  payee  to  be  cred- 
ited in  this  amount. 

Let  us  trace  the  debit  entries  and  credit  entries 
that  would  have  their  origin  in  a  series  of  sup- 
posititious transactions.    As  A  obtained  twenty 


58  THE  FLOW  OF  VALUE 

bushels  of  potatoes  from  B,  he  would  give  B  his 
certificate  for  ten  dollars  which  would  give  rise 
to  a  debit  entry  and  to  a  credit  entry  on  the  record 
thus: 

A  B 

Dr.        Cr.  Dr.        Cr. 

10  10 

As  C  obtained  from  A  five  sacks  of  flour,  giving 
his  check  for  five  dollars,  that  amount  would  be 
entered  to  the  debit  of  C  and  to  the  credit  of  A, 
making  the  record  stand: 

ABC 
Dr.        Cr.  Dr.        Cr.  Dr.        Cr. 

10  10 

5  5 

As  B  obtains  from  A  five  sacks  of  flour  and  gives 
his  check  for  five  dollars,  the  record  becomes: 

ABC 
Dr.        Cr.  Dr.        Cr.  Dr.        Cr. 

10  10 

5  5 

5  5 

As  B  obtains  from  C  fifty  pounds  of  mutton  and 
gives  his  check  for  five  dollars,  the  record  be- 
comes : 

ABC 
Dr.        Cr.  Dr.        Cr.  Dr.        Cr. 

10  10 

5  5 

5  5 

5  6 


PRICES  FOR  FOODSTUFFS  59 

As  the  record  now  stands  the  entries  to  the 
debit  of  each  depositor  amount  to  the  same  as  the 
entries  to  his  credit;  that  is,  each  account  is  bal- 
anced. For  the  twenty  bushels  of  potatoes  hav- 
ing the  exchange  ratio  of  ten  dollars  which  A 
obtained  from  B,  he  has  transferred  five  sacks 
of  flour  having  the  exchange  ratio  of  five  dollars 
to  C,  and  five  sacks  of  flour  having  the  exchange 
ratio  of  five  dollars  to  B.  In  return  for  the 
twenty  bushels  of  potatoes  having  the  exchange 
ratio  of  ten  dollars  which  B  transferred  to  A,  he 
received  five  sacks  of  flour  having  the  exchange 
ratio  of  five  dollars  from  A,  and  fifty  pounds  of 
mutton  having  the  exchange  ratio  of  five  dollars 
from  C.  In  return  for  the  five  sacks  of  flour  hav- 
ing the  exchange  ratio  of  five  dollars  he  received 
from  A,  C  transferred  to  B  fifty  pounds  of  mut- 
ton having  the  exchange  ratio  of  five  dollars. 

While  it  is  conceivable  that  the  accounts  of  rec- 
ord might  thus  exactly  balance  at  one  time  or 
another,  this  probably  would  rarely  happen.  The 
periods  during  which  the  utilities  obtained  by 
one  family  were  consumed  would  not  likely  be 
coincident  with  the  periods  during  which  the  util- 
ities obtained  by  other  families  were  consumed. 
Regardless  of  the  periods  of  consumption  by  each 
of  respective  quantities  of  one  utility  or  another, 
A  would  continuously  need  potatoes  and  mutton, 
B  would  continuously  need  flour  and  mutton,  and 
C,  flour  and  potatoes.    As  wheat  was  harvested 


60  THE  FLOW  OF  VALUE 

from  season 'to  season  and  converted  into  flour,  as 
sheep  were  grown  from  season  to  season  and  con- 
verted into  mutton,  as  potatoes  were  raised  from 
season  to  season,  there  would  be  transfers  of  prop- 
erty in  the  utilities  of  each  kind  which  would  re- 
sult in  a  series  of  entries  to  the  debit  and  to  the 
credit  of  each  account.  A  balance  to  the  debit 
of  any  depositor  would  mean  that  there  would 
be  due  from  him  utilities  having  the  exchange 
ratio  of  the  dollars  indicated  by  that  balance. 
He  might  cancel  the  debt  with  utilities  then  in 
existence,  or  at  a  future  time  with  utilities  sub- 
sequently produced.  A  balance  to  the  credit  of 
a  depositor  would  mean  that  there  would  be  due 
to  him  utilities  having  the  exchange  ratio  of  the 
dollars  indicated  by  that  balance.  The  payment 
to  him  might  be  with  utilities  then  in  existence, 
or  at  a  future  time  with  utilities  subsequently 
produced.  By  means  of  debit  entries  and  credit 
entries  there  would  continue  to  be  adjusted  the 
continued  exchange  of  the  results  of  effort.  Co- 
incident with  the  flow  of  the  production  of  utilities 
and  of  the  transfer  of  property  in  utilities  would 
be  the  flow  of  debit  and  of  credit  entries. 

Profit  is  gain.  Its  germ  was  in  the  beginnings 
of  exchange.  When  A,  B,  and  C  respectively  ex- 
changed flour,  mutton,  and  potatoes,  each  obtained 
gain,  because  each  received  that  which  he  wanted 
more  than  that  with  which  he  had  parted,  because 


PRICES  FOR  FOODSTUFFS  61 

each  had  produced  in  excess  of  his  own  wants  that 
with  which  he  parted,  and  because  each  had  pro- 
duced that  surplus  with  less  than  the  effort  requi- 
site to  produce  that  which  he  received.  Had  there 
not  been  mutual  gain  there  would  not  have  been 
exchange.  Were  there  not  exchange  there  would 
not  be  a  unit  of  exchange.  Respective  measures 
of  different  utilities  came  to  have  a  ratio  to  this 
unit,  because  their  exchange  in  these  measures  re- 
sulted in  mutual  gain. 

Because  of  various  conditions  there  may  be  a 
variation  between  one  time  and  another  and  one 
place  and  another  in  the  measure  of  a  utility  hav- 
ing the  ratio  of  the  unit  of  exchange.  For  exam- 
ple, a  scant  crop  of  wheat  might  lead  A  to  de- 
mand more  than  one  dollar  for  a  sack  of  flour. 
This  would  mean  that  he  wanted  to  pay  less  than 
a  sack  of  flour  for  two  bushels  of  potatoes  or  for 
ten  pounds  of  mutton.  The  ratio  of  flour  to  the 
unit  would  fall;  a  smaller  measure  could  be  ob- 
tained for  a  dollar;  its  price  would  advance.  If 
there  was  a  continual  diminution  in  the  supply 
of  flour  in  relation  to  the  supply  of  potatoes  and 
mutton,  B  would  pay  two  bushels  of  potatoes  and 
C  ten  pounds  of  mutton  for  diminishing  measures 
of  flour,  until  the  measure  that  thus  could  be 
obtained  would  be  so  small  that  they  would  no 
longer  derive  gain.  Then  they  would  cease  to 
exchange  either  potatoes  or  mutton  for  flour. 
Flour  would  no  longer  be  an  economic  utility;  it 


62  THE  FLOW  OF  VALUE 

would  not  command  price ;  it  would  have  no  ratio 
to  the  unit  of  exchange.  B  and  C  would  either 
have  to  produce  flour  themselves  or  provide  a  sub- 
stitute for  it.  A  would  have  to  do  without 
potatoes  or  mutton  unless  he  raised  them  him- 
self or  produced  some  utility  other  than  flour  for 
which  B  and  C  would  be  willing  to  pay  potatoes 
and  mutton. 

If  at  the  time  there  was  a  scant  supply  of  flour 
there  was  also  such  a  scant  supply  of  potatoes  that 
B  would  want  more  than  a  sack  of  flour  or  ten 
pounds  of  mutton  for  two  bushels  of  potatoes,  he 
probably  would  be  able  to  obtain  more  mutton  but 
not  more  flour.  C  would  continue  to  buy  flour  and 
potatoes  until  more  of  mutton  were  demanded  in 
return  than  he  would  pay.  That  is,  he  would  con- 
tinue to  buy  flour  and  potatoes  until  there  was  no 
gain  in  doing  so.  Then  A  and  B  would  have  to 
raise  mutton  for  themselves  or  do  without  it. 

On  the  other  hand,  if  at  a  given  time  the  supply 
of  flour  became  so  abundant  that  B  would  not  pay 
as  much  as  two  bushels  of  potatoes  for  a  sack  of 
flour  nor  C  as  much  as  ten  pounds  of  mutton  for 
a  sack  of  flour,  the  ratio  of  flour  to  the  unit  would 
rise,  a  greater  measure  could  be  obtained  for  a 
dollar,  its  price  would  fall.  If  the  supply  of  flour 
continued  to  become  more  and  more  abundant  in 
relation  to  the  supply  of  potatoes  and  mutton, 
B  and  C  would  pay  less  and  less  for  it,  until  A 
would  not  obtain  suflBcient  from  them  to  meet  his 


PRICES  FOR  FOODSTUFFS  63 

wants.  He  might  produce  less  of  flour  and  re- 
sume the  raising  of  potatoes  and  mutton. 

Thus  we  arrive  at  these  deductions.  If  a  util- 
ity can  not  be  had  except  at  a  price  so  high  that 
gain  can  not  be  derived  from  its  purchase,  it  will 
not  be  bought  and  its  production  for  sale  will 
cease.  ,  Obversely,  if  the  price  obtainable  for  a 
utility  be  so  low  that  gain  can  not  be  derived  from 
its  sale,  its  production  for  sale  will  oease. 

This  chapter  no  more  than  outlines  the  factors 
that,  under  the  conditions  presupposed,  would  en- 
ter into  the  determination  of  prices  for  final  util- 
ities in  the  form  of  foodstuffs,  the  emergence  of 
profit  from  their  production  and  sale,  and  the 
effect  of  profit  in  determining  what  foodstuffs 
would  be  bought  and  sold. 

The  prices  for  utilities  in  this  chapter  are  illus- 
trative and  not  historical.  Although  they  seem 
low  in  comparison  with  prices  of  subsequent  pe- 
riods as  expressed  in  dollars,  they  are  not  without 
a  degree  of  verisimilitude  when  compared  with 
prices  of  an  early  stage  of  development,  such  as 
that  of  the  Colonial  period  of  this  country.  It 
is  part  of  the  supposition  that  A,  B,  and  C  were 
self-sufl5cient  in  meeting  wants  other  than  those 
for  flour,  mutton,  and  potatoes,  that  is,  that  these 
were  the  only  utilities  for  which  exchange  ratios 
had  developed. 


VI 


A    HYPOTHETICAL    DEVELOPMENT    OF    PRICES    FOR    THE 

PRODUCTS   OF  ARTISANS,   FOR   SUBSTANCE  AND 

OF   WAGES 

As  a  community  emerges  from  self-suflficiency 
obviously  the  utilities  between  which  there  is  first 
established  an  exchange  ratio  are  those  that  first 
become  the  subject  of  exchange.  That  is,  the  first 
economic  utilities  gave  rise  to  the  first  buying  and 
selling;  and  it  was  the  first  economic  utilities  that 
were  first  bought  and  sold.  The  first  economic 
utilities  may  have  been  foodstuffs,  or  they  may 
have  been  the  products  of  an  artisan.  But  he  who 
specialized  in  the  production  of  certain  essential 
utilities  would  have  to  be  provided  by  others  with 
the  essential  utilities  he  did  not  produce.  There- 
fore specialization  in  the  growing  of  foodstuffs 
which  would  lead  to  the  differentiation  of  the 
farmer  would  also  tend  toward  the  differentiation 
of  the  artisan,  and  specialization  in  the  handicrafts 
would  tend  toward  the  differentiation  of  the  pro- 
ducer of  foodstuffs. 

Under  our  hypothesis  the  first  exchanges  were 
of  certain  of  the  foodstuffs.  Such  differences  in 
conditions  of  production  as  led  them  to  become  the 

64 


PRICES  FOR  PRODUCTS  OF  ARTISANS     66 

subject  of  exchange  would  affect  the  production 
of  other  utilities  and  cause  them  likewise  to  enter 
into  exchange.  For  example,  of  the  various  per- 
sons engaged  in  making  shoes  it  is  inconceivable 
but  that  one  would  display  greater  aptitude  than 
others.  He  would  be  called  upon  to  make  shoes 
not  only  for  his  own  family,  but  the  other  fam- 
ilies would  be  glad  to  exchange  of  the  things  which 
they  could  produce  at  an  advantage  for  the  shoes 
which  he  could  produce  at  an  advantage.  Thus 
shoes  would  become  an  economic  utility. 

If  this  shoemaker,  D,  had  been  called  upon  to 
make  the  shoes  for  the  families  of  A,  B,  and  C, 
when  they  were  otherwise  self-sufficient,  he  would 
have  gone  from  house  to  house,  working  into  shoes 
the  leather  obtained  from  the  hides  of  sheep  killed 
by  each  of  them.  He  would  have  received  food 
and  shelter  from  each  family  while  at  work  for  it. 
When  he  came  to  work  in  his  own  shop  he  would 
also  have  to  receive  food  in  return  for  the  results 
of  his  effort  in  making  shoes.  There  would  have 
to  be  established  the  ratios  in  which  shoes  would 
be  exchanged  for  food.  Now  l6t  us  suppose  that 
to  his  annual  nourishment  were  requisite  five  sacks 
of  flour,  ten  bushels  of  potatoes,  and  fifty  pounds 
of  mutton.  This  would  be  the  very  least  for  which 
D  could  afford  to  desist  from  producing  his  own 
flour,  potatoes,  and  mutton.  If  he  were  to  make 
shoes  for  the  families  of  A,  B,  and  C,  D  would 
have  to  receive  from  them  flour,  potatoes,  and  mut- 


66  THE  FLOW  OF  VALUE 

ton  in  these  quantities.  That  is,  he  must  receive 
annually  from  A  flour  of  the  exchange  ratio  of 
five  dollars,  from  B  potatoes  of  the  exchange  ratio 
of  five  dollars,  and  from  C  mutton  of  the  exchange 
ratio  of  five  dollars.  As  in  an  exchange  each  ob- 
tains as  much  as  he  can  and  parts  with  as  little 
as  he  can,  the  tendency  would  be  for  A,  B,  and  C 
respectively  to  pay  D  the  least  he  would  accept 
for  making  their  annual  supply  of  shoes.  Let  us 
suppose  that  each  of  them  required  two  pairs  of 
shoes  a  year.  This  would  mean  that  A  would 
have  to  pay  two  and  one-half  sacks  of  flour  for  a 
pair  of  shoes  or  continue  to  make  them  for  him- 
self; and  D  would  have  to  make  a  pair  of  shoes 
for  two  and  one-half  sacks  of  flour  or  raise  the 
flour  himself.  Likewise  B  would  have  to  pay  five 
bushels  of  potatoes  for  a  pair  of  shoes,  and  C 
twenty-five  pounds  of  mutton.  D  would  be  obliged 
to  make  two  pairs  of  shoes  a  year  for  the  requisite 
annual  supply  of  five  sacks  of  flour,  two  pairs  of 
shoes  a  year  for  the  requisite  ten  bushels  of  po- 
tatoes, and  two  pairs  of  shoes  a  year  for  the  requi- 
site fifty  pounds  of  mutton.  As  the  exchange  ra- 
tio of  flour  was  one  sack  to  the  dollar,  of  potatoes 
two  bushels  to  the  dollar,  and  of  mutton  ten 
pounds  to  the  dollar,  the  exchange  ratio  of  a  pair 
of  shoes  would  become  two  and  one-half  dollars. 
It  would  take  two  and  one-half  dollars  to  buy  a 
pair  of  shoes. 
When  D  came  to  work  in  his  own  shop  he  might 


PRICES  FOR  PRODUCTS  OF  ARTISANS     67 

have  provided  the  leather  from  hides  of  sheep 
raised  by  himself,  or  more  likely  A,  B,  and  C  would 
continue  for  a  time  to  furnish  him  the  hides  which 
he  made  into  shoes  for  them.  When,  however,  C 
came  to  produce  mutton  for  families  A  and  B,  he 
would  have  a  surplus  of  hides.  Naturally  C  would 
be  prompted  to  sell  his  surplus  of  hides  to  D,  and 
D  would  find  it  advantageous  to  obtain  hides 
from  C. 

Thus  hides  would  become  an  economic  utility. 
Under  this  supposition  they  would  be  the  first  in- 
termediate utility;  that  is,  the  first  substance  for 
transformation  into  further  utilities  to  become  an 
economic  utility.  An  exchange  ratio  would  be  es- 
tablished for  hides;  that  is,  a  measure  of  hides 
would  come  to  have  a  ratio  to  the  dollar. 

While  C  probably  would  be  willing  to  supply  D 
with  the  hides  to  be  transformed  into  shoes  for  C, 
he  would  not  be  willing  to  supply  without  return 
the  hides  used  in  making  shoes  for  A  and  B.  So 
long  as  the  shoes  made  by  D  for  A,  B,  and  C 
brought  him  no  more  than  his  subsistence,  he 
would  not  have  anything  wherewith  to  pay  for 
hides.  He  could  not  buy  hides  from  C  unless  he 
could  obtain  customers  for  additional  shoes,  from 
whom  he  would  receive  that  which  would  enable 
him  to  pay  for  the  hides.  That  is,  D  could  not 
buy  other  than  flour,  mutton,  and  potatoes  until 
he  produced  utilities  in  excess  of  those  necessary 
to  provide  him  with  the  flour,  mutton,  and  pota- 


68  THE  FLOW  OF  VALUE 

toes  requisite  to  his  subsistence.  If  for  each  pair 
of  shoes  in  addition  to  the  six  pairs  made  for  A, 
B,  and  C,  D  received  two  and  one-half  dollars,  he 
would  have  to  his  credit  that  which  he  did  not  need 
to  expend  for  flour,  potatoes,  and  mutton.  If  he 
sold  one  additional  pair  of  shoes,  he  would  have 
two  and  one-half  dollars  to  his  credit  which  could 
be  expended  for  more  of  flour,  potatoes,  or  mut- 
ton, or  which  could  be  eiJ^pended  for  hides.  That 
is,  he  could  expend  the  two  and  one-half  dollars 
for  personal  gratification,  or  he  could  invest  it 
toward  further  production.  This  is  the  second 
stage  of  profit.  The  first  stage  was  in  obtain- 
ing through  exchange  that  produced  with  less  ef- 
fort than  would  have  been  required  of  the  recipi- 
ent. The  second  stage  is  marked  by  a  surplus  of 
that  received  for  putting  forth  individual  effort 
over  that  which  is  consumed  by  the  individual. 

If  to  the  production  of  hides  were  necessary  the 
application  of  exclusive  effort,  they  could  not  be 
produced  by  C  unless  he  received  the  flour,  pota- 
toes, and  mutton  requisite  for  his  subsistence,  but 
whatever  he  received  for  hides  produced  at  the 
same  time  as  mutton  would  be  in  addition  to  what 
he  received  for  the  mutton.  Hides  would  be  a  by- 
product of  mutton.  C  would  endeavor  to  obtain 
the  most  he  could  for  the  hides  and  D  would  en- 
deavor to  pay  the  least  he  could  for  them.  If  to 
the  making  of  each  pair  of  shoes  were  necessary 
four  pounds  of  hides,  there  would  be  required  for 


PRICES  FOR  PRODUCTS  OF  ARTISANS     69 

the  original  six  pairs  of  shoes  made  for  A,  B,  and 
C  twenty-four  pounds  of  hides  which  they  would 
furnish  to  D.  If,  working  in  his  own  shop,  D  made 
seven  pairs  of  shoes,  he  would  receive  seventeen 
and  one-half  dollars.  He  would  have  to  pay  fif- 
teen dollars  for  flour,  mutton,  and  potatoes,  and 
thus  he  would  have  two  and  one-half  dollars  re- 
maining, which  would  be  the  most  he  could  pay 
for  the  twenty-eight  pounds  of  hides  required  in 
making  the  seven  pairs  of  shoes.  Therefore,  if 
C  drove  the  utmost  possible  bargain  with  him, 
D  would  be  obliged  to  pay  about  nine  cents  a 
pound  for  hides.  He  could  not  pay  more  than 
this.  The  price  might  be  as  much  less  as  C  could 
be  prevailed  upon  to  accept. 

If  D  could  obtain  customers  for  all  of  the  shoes 
he  could  make  in  the  course  of  a  year,  that  which 
he  would  receive  would  be  limited  by  the  number 
of  shoes  he  could  make.  If  he  could  make  a  pair 
of  shoes  a  week,  he  could,  in  fifteen  weeks,  make 
sufficient  to  supply  one  pair  to  each  person  of 
families  of  five  members  of  A,  B,  and  C,  and  for 
them  he  would  receive  thirty-seven  and  one.-half 
dollars.  For  these  he  would  require  sixty  pounds 
of  hides.  C  would  have  to  sell  his  surplus  of 
hides,  or  utilize  them  himself,  or  throw  them  away. 
He  probably  could  not  utilize  them  himself,  and 
would  be  willing  to  take  what  he  could  get  rather 
than  throw  them  away.  D  would  have  to  buy 
hides  or  desist  from  making  shoes.    As  the  ut- 


70  THE  FLOW  OF  VALUE 

infost  that  D  could  afford  to  pay  for  hides  after  ho 
had  reached  the  point  where  he  could  afford  to 
buy  them  at  all,  was  nine  cents  a  pound,  he  might 
refuse  to  pay  more  and  C  to  accept  less.  For  the 
sixty  pounds  of  hides  D  would  pay  a  fraction  less 
than  five  and  one-half  dollars.  This  added  to  his 
expenditure  of  fifteen  dollars  for  flour,  potatoes, 
and  mutton  would  make  twenty  and  one-half  dol- 
lars. If  he  made  no  more  shoes  in  the  course  of 
a  year  he  would  have  remaining  seventeen  dollars, 
which  would  suffice  to  provide  flour,  mutton,  and 
potatoes  for  a  wife  and  leave  more  than  enough 
to  purchase  the  hides  required  for  the  shoes  of 
himself  and  his  wife.  If  D  were  able  to  make  a 
pair  of  shoes  a  week,  or  in  round  numbers  fifty 
pairs  a  year,  he  would,  if  he  could  obtain  custom- 
ers for  all  of  them,  receive  at  the  price  of  two  and 
one-half  dollars,  one  hundred  and  twenty-five  dol- 
lars. Of  this  it  would  require  seventy-five  dollars 
a  year  to  provide  flour,  potatoes,  and  mutton  for 
a  family  of  five  persons.  He  could  pay  eighteen 
dollars  for  the  requisite  hides,  and  have  thirty- 
two  dollars  remaining.  This  would  be  profit,  con- 
sisting in  the  surplus  received  by  an  individual 
for  utilities  produced  by  his  individual  effort  over 
that  expended  by  him  for  the  subsistence  of  his 
family  and  for  payment  to  those  from  whom  he 
obtained  the  substance  utilized  in  production. 

In  a  state  of  complete  self-sufficiency,  the  fam- 
ilies of  A,  B,  and  C  wove  into  cloth  the  wool  shorn 


PRICES  FOR  PRODUCTS  OF  ARTISANS     71 

from  sheep  they  raised,  and  made  the  cloth  into 
clothing  for  the  respective  members.  As  C  came 
to  produce  the  mutton  consumed  by  families  A  and 
B,  he  would  not  only  have  a  surplus  of  hides,  but 
his  flocks  probably  would  so  increase  that  he 
would  also  have  a  surplus  of  wool.  It  is  incon- 
ceivable but  that  some  one  engaged  in  weaving 
wool  into  cloth  and  making  cloth  into  clothing 
would  develop  greater  aptitude  than  others.  He 
would  be  called  upon  not  only  to  make  the  clothes 
for  his  own  family,  but  for  the  members  of  other 
families  who  would  be  glad  to  exchange  with  him 
the  things  they  could  produce  at  an  advantage  for 
the  clothes  he  could  produce  at  an  advantage. 
Thus  clothing  would  become  an  economic  utility. 
This  tailor  E  would  have  to  obtain  from  C  the 
wool  which  he  would  weave  into  cloth  and  make 
into  clothing  for  the  families  of  A,  B,  C,  D,  and  E. 
Wool  would  become  an  economic  utility.  If  to 
the  nourishment  of  E  were  requisite  the  same 
quantities  of  flour,  potatoes,  and  mutton  as  for 
D,  and  A,  B,  and  C,  and  each  required  one  suit  of 
clothes  a  year,  the  exchange  ratio  of  a  suit  of 
clothes,  that  is  its  price,  would  be  five  dollars. 
The  price  for  wool  would  be  determined  in  the 
same  manner  as  the  price  for  hides. 

The  fact  that  he  no  longer  raised  potatoes  or 
mutton  or  made  his  own  shoes  or  clothing,  would 
enable  A  to  plant  more  wheat,  and  to  make  more 
flour.     Similarly,  through  the  specialization  of  ef- 


72  THE  FLOW  OF  VALUE 

fort  B  could  raise  more  potatoes,  C  more  of  mut- 
ton, hides,  and  wool;  D  could  make  shoes,  and  E 
clothes  to  the  limit  of  their  respective  capacity. 

To  the  extent  that  A  could  produce  and  sell 
flour  in  excess  of  that  needed  for  the  purchase  of 
the  potatoes,  mutton,  and  shoes  consumed  by  him- 
self, he  could  provide  potatoes,  mutton,  and  shoes 
for  a  family.  To  the  extent  that  B  could  produce 
and  sell  a  surplus  of  potatoes  and  C  could  pro- 
duce and  sell  a  surplus  of  mutton,  hides,  and  wool, 
they  could  respectively  provide  the  other  utilities 
for  members  of  their  family.  To  the  extent  that 
D  could  make  shoes  and  E  clothes  in  excess  of 
those  required  to  provide  the  flour,  mutton,  and 
potatoes  necessary  for  their  subsistence,  they 
would  have  dollars  to  their  credit  which  could  be 
expended  for  hides  and  wool.  A  surplus  above 
that  expended  for  these  purposes  could  be  devoted 
to  the  purchase  of  flour,  mutton,  and  potatoes  for 
the  support  of  a  family.  There  would  be  an  in- 
creasing number  of  persons  as  families  increased 
in  size  and  new  families  came  into  existence. 
Thus  there  would  be  an  increasing  number  of  per- 
sons who  coulji  consume  the  increasing  supplies 
of  flour,  potatoes,  mutton,  shoes,  and  clothing. 

When  the  demand  for  utilities  of  a  given  kind 
came  to  be  in  excess  of  those  an  individual  could 
produce  himself,  he  could  enlist  the  efforts  of  an 
employee.  The  effort  put  forth  by  A,  B,  C,  D, 
and  E  in  their  respective  vocations  was  an  eco- 


PRICES  FOR  PRODUCTS  OF  ARTISANS     73 

uomic  utility  in  the  sense  that  it  entered  into  the 
production  of  the  utilities  they  sold.  But  it  was 
effort  put  forth  by  the  person  who  was  responsible 
for  the  sale  of  that  which  he  produced.  The  ef- 
forts of  an  employee  are  applied  to  substance  for 
the  provision  of  which  he  is  not  responsible,  and 
in  the  production  of  utilities  for  the  sale  of  which 
he  is  not  responsible.  Thus  human  effort  becomes 
an  economic  utility  in  somewhat  the  same  sense 
that  substance  is  an  economic  utility.  Therefore 
price  has  to  be  determined  for  human  effort,  that 
price  designated  as  wage. 

Through  long  periods  the  utilities  required  for 
the  subsistence  of  an  individual  would  not  mate- 
rially change.  If  five  sacks  of  flour,  ten  bushels 
of  potatoes,  fifty  pounds  of  mutton,  two  pairs  of 
shoes,  and  one  suit  of  clothes  continued  to  be  the 
smallest  measures  of  these  utilities  that  would 
suflBce  an  individual  for  one  year,  the  lowest  wage 
an  employer  could  pay  would  be  at  the  rate  of 
twenty-five  dollars  a  year.  That  is,  the  employee 
could  obtain  twenty-five  dollars  a  year  for  mak- 
ing shoes  with  which  he  could  buy  flour,  mutton, 
and  potatoes.  He  would  at  this  stage  of  develop- 
ment have  to  be  self-sufficient  in  the  production 
that  met  other  wants.  It  is,  however,  to  be  re- 
flected that  as  under  our  supposition,  any  one 
could  gain  subsistence  by  the  individual  applica- 
tion of  his  effort,  an  employer  would  probably 
have  to  pay  a  higher  wage  than  this.    If  for  an 


74  THE  FLOW  OF  VALUE 

increased  volume  of  utilities  produced  by  th( 
combined  efforts  of  himself  and  his  employee,  the 
employer  could  obtain  the  same  prices  as  before 
the  dollars  to  his  credit  would  tend  continually  tc 
be  in  excess  of  those  required  in  payment  foi 
subsistence,  substance,  and  wages.  Thus  his 
profit  would  consist  of  the  credits  received  foi 
utilities  produced  by  the  combined  efforts  of  him 
self  and  his  employee  over  his  expenditures  foi 
subsistence,  for  substance  utilized  in  production 
and  for  wages  paid  for  effort  enlisted  in  produc 
tion. 

In  nearly  all  men  is  the  desire  for  gain.  In  or 
der  that  the  dollars  to  his  credit  may  increase  ii 
accelerating  ratio,  a  producer  will  endeavor  t( 
produce  at  a  decreasing  expense^  Shoemaker  D 
through  the  intelligent  coordination  of  the  efforts 
of  himself  and  his  employee,  would  find  that  th( 
expense  of  producing  each  pair  was  less  than  ij 
they  worked  separately.  That  is,  a  greater  num 
ber  of  shoes  could  be  produced  in  relation  to  th( 
effort  expended  in  production,  a  greater  numbei 
of  shoes  could  be  produced  in  relation  to  the  flour 
mutton,  and  potatoes  required  to  maintain  th( 
vitality  from  which  emanated  the  effort  applied  ii 
production.  If  the  demand  so  increased  that  h( 
could  utilize  the  effort  of  additional  employees 
he  might  the  further  specialize  their  application 
He  might  have  one  prepare  soles,  another  uppers 
and  another  put  them  together.    By  such  effective 


PRICES  FOR  PRODUCTS  OF  ARTISANS     75 

specializatian  and  coordination  he  could  produce 
a  still  greater  volume  of  shoes  in  relation  to  the 
effort  expended.  If  he  continued  to  obtain  the 
same  prices,  his  credits  would  the  further  increase. 

When  D  bought  hides  from  C,  he  would  convert 
them  into  leather  himself  and  later  might  have 
certain  of  his  employees  convert  them  into  leather. 
In  time  he  would  discover  that  a  man  specializing 
in  the  conversion  of  hides  into  leather  could  effect 
such  economy  in  its  production  that  by  availing 
of  his  efforts  he  could  make  a  still  larger  number 
of  shoes  with  the  efforts  of  the  same  number  of 
men.  Thus  evolves  the  tanner.  Or  he  may 
evolve  through  the  enterprise  of  one  who  perceives 
that  by  specializing  in  the  conversion  of  hides  into 
leather  he  can  produce  leather  so  advantageously 
that  he  can  sell  it  to  the  shoemaker  for  less  than 
the  shoemaker  can  produce  it.  The  specialized 
tanner  may  come  to  produce  leather  sufficient  for 
the  requirements  of  a  number  of  shoemakers. 
He  will  become  better  acquainted  with  the  sources 
whence  hides  can  be  obtained  than  the  separate 
^shoemakers  and  will  be  able  to  purchase  them  in 
larger  quantity.  As  the  demand  for  leather  in- 
creases, he  can  increase  his  production  by  employ- 
ing wage-earners,  and  reduce  his  cost  of  produc- 
ing leather  by  specializing  and  coordinating  their 
effort. 

In  our  supposititious  case  of  the  purchase  of 


76  THE  FLOW  OF  VALUE 

hides  by  D  from  C,  the  conditions  determined  that 
the  price  could  not  be  in  excess  of  nine  cents  a 
pound.  It  may  be  that  D's  cost  of  converting 
hides  into  leather  by  means  of  the  efforts  of  his 
own  employees  was  three  cents  a  pound.  He 
might  be  willing  to  pay  the  tanner  twelve  cents  a 
pound  for  leather  in  order  that  his  employees 
might  concentrate  their  efforts  upon  making  shoes, 
but  he  would  not  pay  more  than  this.  He  would 
endeavor  to  pay  less  and  through  bargaining 
would  doubtless  share  in  the  benefit  of  the  tan- 
ner's lower  cost  of  production.  As  there  came  to 
be  several  tanners  purchasing  hides  from  several 
farmers  and  selling  leather  to  several  shoemakers, 
there  would  be  competition  between  the  farmers 
to  sell  their  hides,  competition  between  the  tan- 
ners to  purchase  their  hides,  competition  between 
the  tanners  to  sell  their  leather,  and  competition 
between  the  shoemakers  to  purchase  their  leather. 
The  quantity  of  leather  that  could  be  made  at  a 
given  time  would  depend  upon  the  hides  available 
at  that  time.  The  demand  for  leather  would  be 
determined  by  the  demand  for  shoes,  the  demand 
for  hides  would  be  determined  by  the  demand  for 
leather.  The  prices  for  hides,  for  leather,  and 
for  shoes  would  be  determined  by  this  interela- 
tion  between  supply  and  demand. 

Through  such  division  and  subdivision  of  the 
functions  of  production  is  the  further  advanced 
that  specialization  by  means  of  which  a  given 


PRICES  FOR  PRODUCTS  OF  ARTISANS     77 

quantity  of  utilities  can  be  produced  by  a  smaller 
number  of  persons,  thus  at  less  expense,  and,  other 
things  equal,  with  increasing  credit  to  the  pro- 
ducer. Therefore  the  tendency  will  be  toward 
such  division  and  subdivision  of  effort  in  the  pro- 
duction of  utilities  of  all  kinds. 

Such  division  and  subdivision  gives  rise  to  an 
increasing  diversity  of  accounts  in  our  suppositi- 
tious record.  For  example,  with  the  evolution  of 
the  shoemaker,  there  would  come  to  be  entries  to 
his  credit  as  he  sold  shoes,  entries  to  his  debit  as 
he  bought  flour,  potatoes,  and  mutton  of  A,  B,  and 
C,  clothes  of  E,  and  corresponding  entries  to  their 
credit.  As  he  came  to  buy  hides  of  C  there  would 
be  entry  of  credit  to  C  for  hides  sold,  and  to  the 
debit  of  I)  for  hides  purchased.  As  the  tanner 
evolved  there  would  be  entries  to  the  credit  of  C 
for  hides  sold,  to  the  debit  of  the  tanner  for  hides 
purchased,  to  the  credit  of  the  tanner  for  leather 
sold,  and  to  the  debit  of  D  for  hides  purchased. 
There  would  be  entries  to  the  credit  of  A,  B,  and  C 
as  the  tanner  purchased  flour,  potatoes,  or  mutton 
from  them,  but  there  would  not  be  entries  to  their 
debit  for  the  purchase  of  leather.  The  entries  to 
the  debit  of  D  as  he  bought  leather  from  the  tan- 
ner would  be  offset  by  entries  to  the  debit  of 
A,  B,  and  C  as  they  purchased  shoes. 

An  increase  in  the  population  necessitates  an 
increase  in  the  volumes  of  the  essential  utilities. 


78  THE  FLOW  OF  VALUE 

If  the  increased  volumes  were  respectively  pro- 
duced by  the  same  proportions  of  the  population, 
and  the  increase  in  production  were  in  proportion 
to  the  increase  in  the  population,  their  prices 
would  not  materially  change.  That  is,  for  exam- 
ple, so  long  as  there  continued  to  be  essential  to 
the  annual  support  of  an  individual  five  sacks  of 
flour,  ten  bushels  of  potatoes,  fifty  pounds  of  mut- 
ton, two  pairs  of  shoes,  and  one  suit  of  clothes, 
these  utilities,  in  these  proportions,  would  have 
to  be  produced  for  each  person  whose  existence 
was  maintained.  The  effort  the  least  efficient  per- 
son put  forth  would  have  to  pay  for  these  utilities, 
and  these  utilities  would  have  to  be  forthcoming 
in  return  for  that  effort.  Thus  the  effort  which 
resulted  in  the  production  of  these  utilities  in  the 
volumes  that  passed  to  the  least  efficient  would 
be  offset  by  the  efforts  of  the  least  efficient.  The 
price  of  the  total  of  their  efforts  would  be  the  price 
of  the  total  of  these  utilities  which  they  have  re- 
ceived in  return  for  their  efforts.  The  more  effi- 
cient would  receive  credits  enabling  them  to  buy 
these  utilities  in  greater  measure,  but  so  long  as 
these  were  the  only  final  utilities,  debits  and  cred- 
its would  be  derived  solely  in  connection  with  the 
processes  of  their  production  and  sale. 

For  example,  when  the  population  so  increased 
that  shoemaker  D  was  obliged  to  enlist  the  efforts 
of  an  employee,  D  would  obtain  additional  credits 
from  the  sale  of  shoes.    The  efforts  of  the  em- 


PRICES  FOR  PRODUCTS  OF  ARTISANS     79 

ployee  would  be  an  economic  utility,  but  the  em- 
ployee could  not  expend  the  credits  received  as 
wage  except  for  such  utilities  as  were  then  pro- 
duced. When  hides  became  an  economic  utility 
and  were  used  only  in  the  making  of  shoes,  the 
shoemaker  would  be  the  only  purchaser.  The 
seller  of  hides  could  expend  the  credits  obtained 
therefrom  only  for  such  other  utilities  as  were 
then  produced.  As  D  obtained  customers  for  all 
the  shoes  he  and  his  employee  could  make,  he 
would  have  credits  more  than  suflBcient  to  provide 
utilities  such  as  were  then  produced  in  quantities 
sufficient  for  his  family,  and  pay  wages  to  his 
employee.  When  his  credits  increased  to  an 
amount  in  excess  of  that  required  to  pay  wages 
and  for  substance;  that  is,  when  the  dollars  ob- 
tained for  the  results  of  efforts  put  forth  in  pro- 
duction for  which  he  was  responsible  exceeded  the 
dollars  expended  in  that  production,  he  would  re- 
ceive profit  in  the  commercial  sense.  This  consists 
in  a  surplus  of  the  credits  received  for  utilities 
over  the  debits  incurred  in  their  production,  and 
thus  does  not  take  into  account  the  personal  ex- 
penditures of  the  recipient.  It  may  or  may  not  be 
sufficient  to  meet  these  personal  expenditures  even 
if  they  are  for  no  more  than  subsistence.  Or  it 
may  be  sufficient  to  allow  him  to  increase  his  per- 
sonal expenditures  and  to  invest  a  portion  in 
further  production. 
As  A,  B,  and  C  similarly  produced  larger  vol- 


80  THE  FLOW  OF  VALUE 

umes  of  flour,  potatoes,  mutton,  hides,  and  wool 
in  relation  to  the  effort  expended,  credits  would 
accrue  to  them  in  excess  of  their  debits  so  long 
as  these  utilities  were  produced  in  the  same  pro- 
portions in  relation  to  the  demand  of  an  increas- 
ing population.  Thus  there  would  come  to  be 
credits  to  A,  B,  and  C  as  well  as  to  D  and  E  that 
would  not  only  enable  them  to  pay  their  expenses 
of  production  but  to  buy  more  of  the  final  utilities 
then  produced  than  they  could  use.  As  utilities  of 
the  kinds  then  bought  and  sold  came  to  be  pro- 
duced by  the  efforts  of  a  decreasing  proportion  of 
the  population,  there  would  be  an  increasing  pro- 
portion whose  efforts  would  not  be  needed  in  pro- 
duction so  long  as  it  was  of  only  these  utilities. 
A,  B,  C,  D  and  E  could  retain  their  surplus  cred- 
its until  they  desired  to  expend  them  for  the  pur- 
chase of  utilities  of  these  kinds,  but  if  they  con- 
tinued in  similarly  efficient  production  their  cred- 
its would  continue  to  increase.  Therefore  the 
only  use  that  could  be  made  of  them  would  be 
to  provide  other  persons  with  such  utilities.  Un- 
less this  provision  were  through  charity,  they 
would  desire  from  those  supplied  the  results  of 
their  efforts  in  return.  But  they  would  not  desire 
the  results  of  the  efforts  of  these  other  persons 
unless  in  the  form  of  utilities  of  other  kinds  than 
those  with  which  they  were  supplied.  Thus  A, 
B,  C,  D  and  E  could  employ  men  in  the  production 
of  utilities  of  kinds  not  theretofore  produced  for 


PRICES  FOR  PRODUCTS  OF  ARTISANS     81 

sale.  There  would  come  to  be  carpenters,  smiths, 
and  other  artisans.  The  ratio  to  the  dollar,  that 
is,  the  prices  of  the  utilities  produced  by  them, 
would  tend  to  be  determined  in  the  same  manner 
as  the  prices  of  shoes  and  clothing;  and  the  prices 
of  substance  used  by  them  in  the  same  manner  as 
the  prices  of  hides  and  wool. 

The  purchase  of  utilities  produced  by  others 
would  be  equivalent  to  employing  others  in  their 
production.  Instead  of  wages  being  paid  directly 
there  would  be  the  transferring  of  credits  to  those 
responsible  for  their  production.  The  perception 
of  opportunities  would  lead  many  who  believed 
they  could  obtain  profit  to  specialize  in  other  kinds 
of  production.  Thus  there  would  be  produced 
additional  utilities  not  only  by  the  smith  and  the 
carpenter  but  by  other  specialized  workers.  Thus 
there  would  be  an  increase  in  the  demand  for  the 
utilities  theretofore  produced  because  of  the  de- 
mand from  those  whose  efforts  were  enlisted  in 
production  of  the  additional  utilities. 

The  attainment  of  profit  in  the  production  of 
the  underlying  essential  utilities  would  tend  to 
lead  others  than  A,  B,  C,  D,  and  E  to  engage  in 
their  production.  For  example,  an  employee,  per- 
ceiving that  shoemaker  D  was  obtaining  profit, 
might  demand  a  higher  wage.  D  might  be  will- 
ing to  advance  his  wage  rather  than  lose  his  serv- 
ices.   With  increasing  credits,  the  employee  would 


82  THE  FLOW  OF  VALUE 

be  enabled  to  purchase  more  than  the  underlying 
utilities  essential  to  his  existence.  He  might  un- 
dertake to  support  a  family. 

It  might  be  that  this  employee  would  not  be  sat- 
isfied with  the  highest  wages  he  could  obtain  from 
D  and  would  engage  in  making  shoes  for  custom- 
ers himself.  If  the  increasing  demand  could  not 
be  met  by  D  and  his  employees,  it  might  suffice 
to  provide  customers  for  the  new  enterpriser. 
If  the  increasing  supply  of  shoes  were  not  in  dis- 
proportionate relation  to  the  increase  in  the  popu- 
lation, and  to  the  increase  in  the  supply  of  other 
utilities,  D  and  his  competitor  might  be  able  to 
obtain  the  same  prices  as  theretofore  for  all  of 
the  shoes  they  could  make.  The  increase  in  de- 
mand might  be  due  not  only  to  an  increasing  popu- 
lation but  in  part  to  the  fact  that  many  families, 
because  of  their  increasing  credits,  would  wear 
more  shoes.  In  the  same  way  there  would  come 
to  be  similar  organizations  composed  of  employer 
and  employees  engaged  in  the  production  of  util- 
ities of  increasing  variety.  The  essential  utilities 
would  have  to  be  produced  for  all  of  the  popula- 
tion, and  their  prices  could  not  be  less  than  would 
provide  subsistence  for  the  least  efficient  employed 
in  production.  Other  utilities  could  not  be  pur- 
chased by  the  least  efficient.  Their  volume  would 
be  limited  by  the  demand  of  those  whose  credits 
were  more  than  sufficient  for  subsistence.  Tlie 
price  of  such  another  utility  would  have  to  be  at 


PRICES  FOR  PRODUCTS  OF  ARTISANS     83 

least  sufficient  to  enable  its  production  to  be  con- 
tinued. It  might  be  as  much  more  as  purchasers 
were  willing  to  pay.  The  tendency  would  be  for 
that  number  of  persons  to  be  engaged  in  its  pro- 
duction to  whom  purchasers  were  willing  to  pay 
the  prices  that  would  enable  the  least  efficient  of 
that  number  to  continue  in  the  production.  At 
lower  prices,  other  things  equal,  the  least  efficient 
would  be  driven  out  of  that  production:  the  least 
efficient  remaining  would  be  more  efficient  than 
those  driven  out.  At  higher  prices,  other  things 
equal,  a  greater  number  would  be  drawn  into  the 
production  until  the  volume  were  in  excess  of 
that  which  would  bring  prices  that  would  support 
the  least  efficient  of  this  number. 

The  least  efficient  receive  no  more  than  they  con- 
sume and  consume  all  they  receive.  Their  gain 
is  in  making  the  living  which  they  could  not  other- 
wise obtain.  The  more  efficient,  those  whose  ef- 
forts contribute  in  greater  measure  to  the  produc- 
tion of  utilities,  receive  credits  that  entitle  them 
to  more  than  is  essential  to  their  existence.  Thus 
they  may  have  a  surplus  of  credits  over  their  ex- 
penditure for  what  they  consume. 

This  chapter  has  outlined  the  evolution  of  the 
artisan,  the  worker  for  wage,  and  the  producer  of 
substance  for  transformation.  Wage  is  paid  by 
the  employer  to  an  employee  for  putting  forth  his 
effort  under  the  direction  of  the  employer,  who  is 
responsible  for  its  application  and  the  results. 


VII 


A  HYPOTHETICAL  DEVELOPMENT  OF  PRICES  FOR  SOURCES 
OF  SUBSTANCE  AND  INSTRUMENTS  OF  PRODUCTION 

Sources  of  Substance 

As  meat,  hides,  and  wool  came  to  have  price,  the 
animals  growing  meat,  hides,  and  wool  would  be 
bought  and  sold  because  of  the  prices  that  could 
be  obtained  for  their  yield.  Thus  such  animals 
would  become  economic  utilities ;  they  would  have 
a  ratio  to  the  dollar.  The  price  of  an  animal 
obviously  would  have  to  be  less  than  that  of  its 
yield,  at  least  as  much  less  as  the  cost  of  obtaining 
it  from  the  animal.  The  price  of  hides  and  wool 
would  likewise  have  to  be  less  than  that  of  the 
intermediate  utilities,  such  as  leather  and  cloth, 
into  which  they  were  transformed,  and  the  prices 
of  these  intermediate  utilities  less  than  those  of 
the  final  utilities  into  which  they  were  ultimately 
transformed. 

For  example,  if  the  price  he  could  obtain  for 
leather  enabled  the  tanner  to  pay  nine  cents  a 
pound  for  hides  and  the  yield  of  an  animal  were 
twenty  pounds  of  hides,  its  price,  if  there  were 
no  other  consideration,  would  have  to  be  less  than 
one  dollar  and  eighty  cents.    If  that  animal  also 

84 


PRICES  FOR  SOURCES  OF  SUBSTANCE  85 

yielded  fifty  pounds  of  meat  for  which  could  be 
obtained  ten  cents  a  pound,  its  price  would  have 
to  be  less  than  six  dollars  and  eighty  cents  in 
order  that  the  purchaser  might  prepare  the  meat 
and  the  hides,  and  derive  gain  from  their  sale. 
The  farmers  who  raised  such  animals  might  con- 
vert them  into  meat  and  hides  themselves,  or 
might  sell  them  to  butchers.  Or  one  farmer  might 
buy  them  from  another  because  of  the  prices  ob- 
tainable for  their  yield  of  substance,  or  for  the 
purpose  of  breeding  animals  which  would  yield 
such  substance.  Or  an  animal  yielding  substance 
with  a  degree  of  continuity,  such  as  a  sheep  yield- 
ing wool,  a  cow  yielding  milk,  a  fowl  yielding  eggs, 
might  be  bought  and  sold  because  of  the  belief  that 
the  prices  obtainable  for  its  continuing  yield  would 
exceed  the  debits  incurred  for  its  purchase  and 
for  the  subsistence  requisite  to  the  production  of 
its  yield. 

The  number  of  farmers  who  would  raise  such 
animals  would  be  limited  by  the  least  efficient,  by 
him  whose  animals  yielded  only  sufficient  to  en- 
able him  to  continue  in  their  production.  The 
more  efficient  farmers,  those  whose  animals  were 
of  greater  yield  in  proportion  to  the  effort  ex- 
pended upon  them,  would,  other  things  equal,  ob- 
tain profit.  Such  efficiency  might  be  due  to  the 
intelligence  and  industry  applied  in  breeding  and 
nurturing  the  live  stock  or,  in  part,  to  the  fertility 
of  the  soil  from  which  were  obtained  the  crops 


86  THE  FLOW  OF  VALUE 

with  which  it  was  fed.  And  so  also  with  the  rais- 
ing of  grain.  The  efficient  farmers,  those  pro- 
ducing the  largest  crops  in  relation  to  the  effort 
expended,  would  obtain  the  highest  profit.  This 
might  be  due  to  their  intelligence  and  industry  in 
cultivating,  sowing,  and  reaping,  but  the  fertility 
of  the  soil  and  accessibility  to  the  markets  for 
its  products  would  be  a  factor  in  their  obtaining 
profit. 

Therefore,  it  would  be  that  as  land  was  utiliz- 
able  in  producing  more  than  necessary  for  the 
subsistence  of  its  cultivators,  there  might  be  those 
willing  to  buy  such  land  because  of  the  profit 
obtainable  through  its  utilization.  Thus  such  land 
would  become  an  economic  utility;  a  measure  of 
such  land  would  conunand  price.  There  also 
might  be  those  willing  to  pay  part  of  the  return 
derived  from  the  cultivation  of  such  land  in  order 
that  they  might  have  the  right  to  use  or  dispose 
of  the  remainder  of  that  return.  Thus  there 
would  evolve  the  rent  of  land.  Land  would  be 
bought  or  would  be  rented  because  it  was  a  source 
of  substance  from  which  profit  could  be  obtained. 
Moreover,  sources  of  substance  of  potential  prof- 
itable utilization  might  be  bought  and  sold.  Sel- 
dom, if  ever,  however,  would  they  command  rent, 
because  rent  for  land  utilized  in  production  is  ordi- 
narily paid  from  the  return  received  through  that 
utilization. 

The  price  of  land  utilized  as  source  of  substance 


PRICES  FOR  SOURCES  OF  SUBSTANCE      87 

depends  upon  the  price  which  can  be  obtained  for 
the  substance  it  yields,  and  the  price  of  that  sub- 
stance depends  in  turn  upon  the  prices  which 
can  be  obtained  for  the  utilities  into  which  it  is 
transformed.  Thus  not  only  does  farming  land 
come  to  bear  a  ratio  to  the  dollar,  but  reaches  of 
timber  and  beds  of  minerals  also  to  have  price. 
They  may  be  sold  separately  from  the  soil,  or  the 
rights  to  the  utilization  of  timber  or  of  underlying 
minerals  may  be  disposed  of  by  lease  providing 
for  payment  as  timber  is  cut  or  minerals  extracted. 
A  given  area  of  land  may  be  utilized  simulta- 
neously in  the  production  of  foodstuffs,  clothing 
stuffs,  woods,  and  minerals.  Other  things  equal, 
a  source  of  substance  which  will  produce  the  great- 
est yield  in  relation  to  the  effort  applied  is  that 
which  will  command  the  highest  price  or  the  high- 
est rent. 

Instruments  of  Production 

As  the  force  applied  by  a  machine  accomplishes 
much  that  previously  was  effected  by  the  direct 
application  of  human  effort,  the  machine,  to  use 
a  common  phrase,  displaces  labor.  It  would  be 
more  accurate  to  say  that  it  enhances  the  produc- 
tivity of  labor.  By  the  use  of  a  machine  a  man 
can  produce  larger  volumes  of  utilities  of  many 
kinds  than  with  his  unaided  effort,  and  he  gives 
form  to  many  utilities  that  could  not  be  produced 
by  his  unaided  effort.    The  machine  evolved  from 


88  THE  FLOW  OF  VALUE 

the  hand-tool.  An  animal  that  pulls  or  carries 
at  the  will  of  man  is  a  tool,  in  a  sense,  but  the 
term  properly  designates  an  instrument  that  has 
been  given  form  by  human  effort.  By  scratch- 
ing the  earth  with  a  stick  and  placing  seed  in  the 
exposed  soil,  primitive  man  increased  the  growth 
of  grain.  With  a  stone  edge  or  a  metal  blade  at- 
tached to  the  stick,  he  could  scratch  more  earth 
in  which  he  could  plant  more  seed  and  thus  the 
further  increase  the  volume  of  grain.  When  he 
progressed  to  the  fashioning  and  use  of  the  hand 
plow  and  the  animal-driven  plow,  there  was  a  yet 
greater  increase  in  the  volume  of  production  in 
relation  to  the  human  effort  applied.  Production 
such  as  that  of  A,  B,  C,  D,  and  E  would  have 
been  impossible  without  tools,  but  tools  then  fash- 
ioned were  of  the  kinds  that  facilitated  the  work 
of  the  hand  such  as  had  been  used  for  centuries. 

Structures,  machines,  and  appliances  do  not  en- 
ter into  the  flow  of  utilities  in  the  same  manner  as 
substance  and  the  utilities  into  which  it  is  trans- 
formed. Whether  property  in  a  machine  be  in 
one  person  or  another,  its  use  is  throughout  a 
shorter  or  longer  period.  It  is  an  economic  util- 
ity in  that  it  may  be  bought  and  sold,  but  its  func- 
tion is  that  of  an  instrument  of  production.  The 
construction  of  engines,  of  machines,  and  the 
structures  in  which  they  were  used  meant  the  de- 
velopment of  property  of  a  kind  that  had  not 
theretofore  entered  into  man's  cognizance.     Prop- 


PRICES  FOR  SOURCES  OF  SUBSTANCE  89 

erty  in  tools,  even  in  the  hand-loom  and  the  spin- 
ning-wheel, was  regarded  much  the  same  as  prop- 
erty in  tables  and  chairs.  There  was  littlp  if  any 
realization  that  the  credits  obtained  from  the  sale 
of  utilities  produced  by  means  of  them  were  in 
any  part  due  to  return  upon  the  cost  of  the  tools. 
Even  those  who  used  horses  and  wagons  in  con- 
veyance for  others  made  little  if  any  distinction 
between  the  expenditure  for  these  instruments 
directly  utilized  in  production  and  expenditure  for 
food  and  clothing. 

In  the  processes  of  constructing  instruments  of 
production  is  requisite  the  application  of  effort 
for  which  ^must  be  paid  wages  at  least  as  high  as 
could  be  obtained  for  its  application  in  other  ways. 
Likewise  to  those  who  applied  their  efforts  in  pro- 
ducing woods  or  metals  would  have  to  be  paid  as 
much  for  producing  these  substances  for  trans- 
formation into  machines  as  for  transformation 
into  other  utilities.  It  would  be  from  the  credits 
obtained  from  the  sale  of  utilities  produced  by 
hand  that  would  be  received  the  debits  requisite 
for  the  construction  of  the  first  machines.  In  the 
last  stage  of  the  construction  of  a  present-day  ma- 
chine are  applied  the  efforts  of  those  who  put 
together  the  parts  of  which  it  is  constituted.  Each 
of  these  parts  is  composed  of  substance  that  has 
undergone  various  stages  of  transformation. 
Therefore  efforts  have  been  applied  by  many  dif- 
ferent persons  in  every  phase  of  the  construction. 


90  THE  FLOW  OF  VALUE 

In  large  part  these  efforts  have  been  applied  in  di- 
recting the  application  of  force  through  other  ma- 
chines, that  in  turn  have  been  formed  by  the 
efforts  of  others  applied  in  large  measure  through 
still  other  machines. 

To  the  operation  of  a  machine  there  are  required 
the  results  of  the  efforts  of  others  than  those  who 
have  been  engaged  in  its  construction  and  of 
others  than  those  immediately  engaged  in  its  oper- 
ation. Whether  the  power  be  steam,  gas,  or  elec- 
tricity, there  is  necessary  the  combustion  of  fuel 
to  generate  that  power.  Therefore,  to  its  opera- 
tion contribute  the  efforts  of  those  who  have  dug 
coal  and  transported  it,  of  those  who  have  con- 
structed the  mines  and  their  equipment,  of  those 
who  have  drilled  and  prepared  the  oil  used  as 
lubricant. 

Those  responsible  for  the  transformation  of 
substance  into  final  utilities  will  continue  to  utilize 
a  machine  in  the  processes  of  that  transforma- 
tion if  the  debits  incurred  for  the  cost  of  the  ma- 
chine and  its  operation  are  less  in  relation  to  the 
credits  received  from  the  sale  of  the  products  than 
would  be  the  relation  of  debits  to  credits  if  the 
products  were  produced  without  the  aid  of  ma- 
chines. That  which  a  man  can  afford  to  pay  for  a 
machine  is,  therefore,  determined  by  the  relation 
of  its  cost  and  the  cost  of  its  operation  to  its  pro- 
ductiveness during  the  period  of  its  usefulness. 

Unemployment  due  to  the  introduction  of  ma- 


PRICES  FOR  SOURCES  OF  SUBSTANCE  91 

chines  is  temporary.  In  their  construction  and 
operation  is  quickly  enlisted  specialized  effort  in 
an  extending  scale.  The  displacement  of  labor  is 
the  liberation  of  effort  for  application  in  the  pro- 
duction of  utilities  in  the  increasing  volume  and 
variety  that  the  extending  use  of  machines  makes 
possible.  Those  who  have  been  trained  in  spe- 
cialized occupations  that  are  rendered  obsolete  by 
the  introduction  of  a  machine  are,  however,  often- 
times subjected  to  inconvenience  or  even  privation 
until  their  effort  is  readjusted  to  other  applica- 
tion. 

There  is  the  possibility  of  obtaining  profit  from 
the  utilization  of  an  instrument  of  production  be- 
cause it  facilitates  that  increase  in  the  volume  of 
production  in  relation  to  the  effort  applied  which 
is  characteristic  of  coordination.  Machines,  by 
enormously  increasing  the  volume  of  production, 
enable  all  persons  to  obtain  utilities  in  greater 
variety.  The  instruments  of  production  utilized 
in  providing  transportation  contribute  to  this  end 
by  conveying  substance  and  intermediate  utilities 
in  larger  volume  than  otherwise  would  be  possible 
to  places  where  they  are  transformed,  and  by  con- 
veying final  utilities  in  larger  volume  than  other- 
wise would  be  possible  to  the  places  where  they 
are  offered  for  sale.  Warehouses,  wholesale 
stores,  and  retail  stores  contribute  to  this  end  by 
retaining  utilities  at  the  place  where  they  are 
wanted  until  the   time   when  they   are   wanted. 


92  THE  FLOW  OF  VALUE 

Were  it  not  for  such  assembling  of  utilities  and 
retaining  them  until  sold,  production  would  have 
to  be  restricted  to  the  volumes  of  utilities  for 
which  there  were  immediate  purchasers. 

Production  by  means  of  machines  has  resulted 
in  utilities  in  volume  in  excess  of  that  for  which 
there  is  immediate  sale,  and  thus  manufacturers 
and  merchants  are  obliged  to  keep  portions  of 
them  in  stock.  Thus  property  is  retained  not  only 
in  instruments  of  production  but  often  for  a  time 
in  the  utilities  produced.  Not  only  is  property 
retained  in  sources  of  substance  but  oftentimes  in 
substance  itself  that  awaits  market. 


VIII 

A    CONTINUATION     OF    THE    HYPOTHETICAL    DEVELOP- 
MENT  OF   PRICES   AND   PROFIT 

If  all  persons  were  of  equal  efficiency  and  the 
same  utilities  were  required  to  maintain  the  exist- 
ence of  each  person,  each  would  contribute  to  pro- 
duction in  the  same  measure  and  would  receive  of 
the  utilities  produced  in  the  same  proportions. 
But,  even  though  the  effort  of  all  persons  were 
equally  effective,  there  would  be  required  to  the 
production  of  certain  utilities  the  application  of 
the  effort  of  a  greater  number  of  persons  than  to 
the  production  of  others,  and  different  utilities 
would  be  required  in  different  proportions. 
Therefore,  it  would  be  necessary  to  apportion  the 
effort  applied  so  that  it  would  result  in  the  pro- 
duction of  utilities  in  the  required  proportions, 
and  it  would  be  necessary  to  apportion  the  utilities 
produced  to  meet  the  wants  of  each  individual. 

Although  in  the  nature  of  things  it  is  more  than 
improbable  that  such  a  community  ever  existed  or 
could  exist,  let  us,  for  the  purpose  of  tracing  the 
relation  between  the  activities  that  give  rise  to 
the  dollar  and  the  dollar  itself,  suppose  that  a  com- 
munity consists  of  one  hundred  and  twenty  per- 

93 


94 


THE  FLOW  OF  VALUE 


sons  engaged  in  production  and  that  the  essential 
utilities  are  five  in  number.  Let  it  be  supposed 
that  an  evolution,  such  as  has  been  described  in  the 
preceding  chapters,  has  resulted  in  the  equilib- 
rium between  the  wants  of  the  community  for 
these  utilities  and  the  numbers  of  persons  engaged 
in  their  respective  production  indicated  by  the 
following : 

TABLE  I 

'Number 
engaged  in 
Production 
24  persons 
32  persons 
36  persons 
18  persons 
10  persons 

60  units     7,200  units    120  persons 


Required 

Utili- 

Required 

for  120 

ties 

per  Person 

Persons 

No.  1 

8  units 

960  units 

No.  2 

32  units 

3,840  units 

No.  3 

12  units 

1,440  units 

No.  4 

6  units 

720  units 

No.  5 

2  units 

240  units 

Production 

Total 

per  Person 

Produced 

40  units 

960  units 

120  units 

3,840  units 

40  units 

144  units 

40  units 

72  units 

24  units 

240  units 

7,200  units 

The  results  of  the  efforts  of 
each  person  must  bring  him 
60  units  of  the  5  utilities  in 
these  proportions: 

Utility  No.  1,     8  units 

Utility  No.  2,  32  units 

Utility  No.  3,  12  units 

Utility  No,  4,     6  units 

Utility  No.  5,     2  units 


The  proportions  in  which  the 
aggregate  effort  is  put  forth 
in  the  respective  production 
of  particular  utilities  is  aa 
follows : 

Utility  No.  1,  12 
Utility  No.  2,  16 
Utility  No.  3,  18 
Utility  No.  4,  9 
Utility  No.  5,     5 


As  the  efforts  of  the  respective  persons  under 
our  supposition  are  of  equal  effectiveness  and, 
therefore,  each  receives  the  same  utilities  in  the 
same  proportions,  the  price  of  the  efforts  of  each 
person,  or,  as  measured  by  their  results,  the  price 
of  the  utilities  he  produces,  must  be  the  sixty  utili- 


PRICES  AND  PROFIT 


96 


ties  of  the  five  kinds  in  the  requisite  proportions. 
Therefore 


40  units  of  Utility  No.  1,  or 
120  units  of  Utility  ^o.  2,  or 
40  units  of  Utility  No.  3,  or. 
40  units  of  Utility  No.  4,  or 
24  units  of  Utility  No.  5 


are  respectively 
equivalent  to 
60  units  as 
follows : 


8  units  of  No.  1 

32  units  of  No.  2 

12  units  of  No.  3 

6  units  of  No.  4 

2  units  of  No.  5 


The  utilities  required  by  each  person  are  com- 
posed of  sixty  units  in  the  varied  proportions.  The 
effort  put  forth  by  each  person  in  the  production  of 
utilities  of  each  respective  kind  is  equivalent  to 
that  portion  of  the  aggregate  effort  put  forth  in  the 
production  of  the  sixty  units  of  the  five  utilities. 
"Unit"  signifies  **one."  When  **one"  is  a  unit 
common  to  utilities  bought  and  utilities  sold,  when 
it  is  the  unit  by  which  they  are  bought  and  sold,  it 
is  a  unit  of  price.  If,  in  this  supposititious  case, 
this  unit  of  price  be  termed  the  dollar,  each  person 
will  receive  sixty  dollars  for  the  utilities  he  has 
produced  and  will  expend  sixty  dollars  for  the 
utilities  he  requires.    Therefore, 

Each  person   producing  40  units  of  Utility  No.   1  will 

receive  $60,  or  $1.50  per  unit. 
Each  person  producing  120  units  of  Utility  No.  2  will 

receive  $60,  or  $  .50  per  unit. 
Each  person  producing  40  units  of  Utility  No.   3  will 

receive  $60,  or  $1.50  per  unit. 
Each  person   producing  40  units  of  Utility  No.  4  will 

receive  $60,  or  $1.50  per  unit. 
Each  person  producing  24  units  of  Utility  No.  5  will 

receive  $60,  or  $2.50  per  unit. 

Each  person  will  obtain  the  essential  utilities 
in  the  requisite  proportions  by  the  following  ex- 
penditure : 


96  THE  FLOW  OF  VALUE 

8  units  of  Utility  No.  1  at  $1.50  $12.00 

32  units  of  Utility  No.  2  at       .50  16.00 

12  units  of  Utility  No.  3  at     1.50  18.00 

6  units  of  Utility  No.  4  at     1.50  9.00 

2  units  of  Utility  No.  5  at    2.50  5.00 

$60.00 

Although  this  supposition  disregards  the  ele- 
ment of  time,  it  is  not  to  be  forgotten  that,  while 
production,  buying,  and  selling  continue  from  day 
to  day,  a  longer  period  is  required  in  the  produc- 
tion of  utilities  of  one  kind  than  in  those  of  an- 
other, and  that  utilities  of  one  kind  last  longer 
than  those  of  another. 

Inasmuch  as  those  who  have  the  capacity  and 
the  inclination  for  directing  and  coordinating  the 
efforts  of  others  seek  the  opportunity  for  utilizing 
the  efforts  of  others,  let  us  suppose  that  of  the 
supposititious  community  one  of  those  engaged  in 
the  production  of  Utility  No.  1  undertook  to  re- 
lieve his  twenty-three  colleagues  from  the  neces- 
sity of  selling  their  products,  under  agreement  to 
pay  them  wages  equal  to  the  return  they  had 
separately  obtained.  Let  us  suppose  that  then, 
through  the  direction  and  coordination  of  their 
efforts,  he  were  enabled  to  produce  1200  units  of 
Utility  No.  1  instead  of  the  960  units  theretofore 
produced.  He  would  endeavor  to  continue  to  ob- 
tain $1.50  a  unit.  That  is,  from  the  sale  of  each 
unit  of  Utility  No.  1  he  would  endeavor  to  obtain 
the  same  command  over  other  utilities  as  was  pre- 


PRICES  AND  PROFIT  97 

viously  obtained  from  the  sale  of  each  unit  of 
Utility  No.  1.  If  he  could  do  so,  he  would  receive 
from  the  sale  of  the  1200  units  an  aggregate  of 
$1800,  or  $360  more  than  previously  received  by 
the  individual  producers  for  the  960  units.  The 
payment  to  each  of  his  twenty-three  employees  of 
the  wage  of  $60  each  would  enable  them  to  buy 
the  same  measures  of  the  five  utilities  as  before. 
There  would  remain  $360  to  his  credit.  But  what 
would  he  do  with  it?  In  the  first  place,  how  could 
he  obtain  the  price  of  $1.50  for  the  1200  units? 
If  the  efforts  of  the  remaining  ninety-six  persons 
continued  to  be  put  forth  as  before,  there  would 
be  for  sale  neither  more  nor  less  of  Utilities  No. 
2,  No.  3,  No.  4,  and  No.  5.  There  would  be  no  sale 
for  the  additional  240  units  of  Utility  No.  1.  In 
order  to  sell  the  1200  units  of  Utility  No.  1,  the 
employer  would  have  to  reduce  the  aggregate 
price  to  that  previously  received  for  the  960  units. 
Instead  of  receiving  $1800  for  the  1200  units,  he 
would  receive  $1440,  or  $1.20  per  unit  instead  of 
$1.50.  Each  of  the  members  of  the  community 
would  be  enabled  to  buy  ten  units  instead  of  eight 
as  before.  The  employer  would  have  received 
no  more  than  the  satisfaction  of  providing  his 
fellowmen  with  ten  units  instead  of  eight,  of  hav- 
ing made  a  blade  and  a  quarter  grow  where  but 
one  grew  before. 

Now  let  us  suppose  that  an  able  and  enterpris- 
ing member  of  each  of  the  other  groups  effected  a 


98  THE  FLOW  OF  VALUE 

similar  combination  of  resources  and  coordination 
of  effort,  which  resulted  in  a  similarly  increased 
production  of  Utilities  No.  2,  No.  3,  No.  4,  and 
No.  5.  Then  24  persons  would  produce  1200  units 
of  Utility  No.  1;  32  persons,  4800  units  of  Utility 
No.  2;  36  persons,  1800  units  of  Utility  No.  3;  18 
persons,  900  units  of  Utility  No.  4;  and  10  per- 
sons, 300  units  of  Utility  No.  5.  If  these  results 
could  have  been  attained  through  separate  and 
uncoordinated  effort,  the  results  of  the  efforts  of 
each  person  would  have  enabled  him  to  buy  10 
units  of  Utility  No.  1  instead  of  8,  40  units  of 
Utility  No.  2  instead  of  32,  15  units  of  Utility  No. 
3  instead  of  12,  7I/2  units  of  Utility  No.  4  instead 
of  6,  21^  units  of  Utility  No.  5  instead  of  2.  In 
this  event  the  price  of  Utility  No.  1  would  be  $1 .20 
per  unit  instead  of  $1.50 ;  of  Utility  No.  2,  $.40  in- 
stead of  $.50;  of  Utility  No.  3,  $1.20  instead  of 
$1.50;  of  Utility  No.  4,  $1.20  instead  of  $1.50;  of 
Utility  No.  5,  $2.00  instead  of  $2.50. 

The  increased  production,  however,  was  ef- 
fected by  the  mental  effort  applied  by  the  em- 
ployers in  coordinating  the  efforts  of  the  em- 
ployees. The  employer  responsible  for  the  pro- 
duction of  utilities  also  became  responsible  for 
the  prices  received  for  them,  and  the  total  derived 
from  their  sale  passed  to  his  credit.  He  would 
endeavor  to  obtain  the  same  prices  as  before. 
That  is,  he  would  endeavor  that  no  greater  meas- 
ure of  the  utilities,  for  the  production  of  which  he 


PRICES  AND  PROFIT  99 

was  responsible,  would  have  the  ratio  of  the  dollar 
than  before.  And  he  would  endeavor  to  obtain 
with  the  dollar  received  the  greatest  measure  he 
could  of  other  utilities. 

In  order  that  he  might  continue  in  production, 
each  employer  would  have  to  enlist  the  requisite 
effort.  The  relation  of  effort  put  forth  to  wants 
met  had  established  $60  as  the  price  of  the  utilities 
required  for  each  individual.  As  each  individual 
could  have  obtained  the  required  utilities  for  $60 
if  he  had  continued  to  work  for  himself,  he  would 
not  work  for  wage  unless  he  could  obtain  at  least 
as  much.  Therefore,  in  order  that  production 
might  continue,  each  employer  would  have  to  pay 
at  least  $60  as  wages  to  each  employee. 

Then  the  flow  of  debits  and  credits  and  of  utili- 
ties would  be  as  follows :  At  the  end  of  a  period 
of  production  each  employer,  from  the  credits  de- 
rived from  the  sale  of  utilities  produced,  would 
pay  $60  as  wage  to  each  employee.  Thus  there 
would  be  a  credit  to  each  employee  of  $60.  He 
would  pay  to  the  producer  of  Utility  No.  1  $12.00 
for  8  units  of  that  utility.  Each  employee  would 
be  debited,  and  employer  No.  1  credited,  with 
$12.00.  Each  employee  would  be  debited  with  $16 
for  32  units  of  Utility  No.  2,  and  employer  No.  2 
credited  with  $16.  Each  employee  would  be  deb- 
ited with  $18  as  the  result  of  his  purchase  of  12 
units  of  Utility  No.  3,  and  employer  No.  3  would 
be  credited  with  $18.    Likewise  there  would  be 


100  THE  FLOW  OF  VALUE 

debit  to  each  employee  for  $9,  the  price  of  6  units 
of  Utility  No.  4,  and  credit  to  employer  No.  4  for 
$9.  And  there  would  be  debit  to  each  employee 
for  $5,  the  price  of  2  units  of  Utility  No.  5,  and 
credit  to  employer  No.  5  in  that  amount.  The 
proportions  in  which  each  had  expended  his  cred- 
its would  indicate  the  utilities  he  wanted  and  in 
what  proportions.  The  aggregate  of  credits  ac- 
cruing to  each  employer  would  enable  him  to  enlist 
the  effort  requisite  to  their  further  production. 
He  would  not  buy  of  these  utilities  with  his  credits 
except  for  his  individual  use  and  consumption. 
He  would  buy  the  effort  of  employees,  and  trans- 
fer to  them,  as  wages,  credits  that  would  enable 
them  to  buy  the  utilities. 

At  the  end  of  a  period  of  production  each  em- 
ployer would  have  utilities  exceeding  by  one  quar- 
ter those  which  had  been  sold  to  the  various  per- 
sons engaged  in  production.  The  120  persons, 
because  of  the  coordination  of  their  efforts,  would 
have  produced  utilities  suiBScient  for  the  support 
of  150  persons.  The  surplus  utilities  would  be  the 
property  of  the  five  employers.  They  could  not 
sell  them  unless  there  were  persons  to  buy  them. 
Persons  could  not  buy  them  unless  they  could  pro- 
duce utilities  in  return.  Each  employer  could  em- 
ploy six  persons  at  the  wage  of  sixty  dollars  a 
year  to  render  service  that  did  not  consist  in  the 
production  of  utilities  for  sale  to  others  than  him- 


PRICES  AND  PROFIT  101 

self;  that  is,  in  the  production  of  utilities  which 
afforded  him  immediate,  personal  gratification. 
Thus  he  could,  for  example,  employ  six  servants 
to  minister  to  his  ease  and  comfort  after  the  fash- 
ion of  the  old-time,  oriental  potentates.  In  any 
event,  there  would  be  utilities  for  the  support  of 
an  additional  thirty  persons,  which  could  be  paid 
by  the  five  employers  separately  or  jointly.  That 
is,  there  would  be  $900  that  could  be  so  expended. 
There  might  come  to  the  community  a  doctor,  a 
teacher,  and  a  barber,  who  would  seek  to  obtain 
as  much  as  they  could  from  the  five  employers. 
The  doctor  might  be  able  to  obtain  $120,  the 
teacher  $120,  and  the  barber  $60.  There  would 
remain  utilities  of  the  ratio  of  $600  in  the  posses- 
sion of  employers.  If  each  employer  and  the  doc- 
tor and  the  teacher  employed  one  servant  at  the 
wage  of  $60,  there  would  remain  utilities  of  the 
ratio  of  $180  in  the  possession  of  the  employers. 

Need  would  develop  for  other  functionaries. 
The  debit  and  credit  entries  would  have  become  so 
numerous  as  perhaps  to  justify  the  employment 
of  one  person  to  give  his  exclusive  time  to  their 
adjustment.  This  would  mean  wage  to  him  of  at 
least  $60. 

In  the  absence  of  any  other  arrangement  each 
member  of  the  community,  when  he  wanted  utili- 
ties of  one  kind  or  another,  would  have  to  go  to 
the  place  of  production  and  buy  them  from  the 


102  THE  FLOW  OF  VALUE 

employer.  As  purchasers  would  probably  buy  re- 
spective utilities  at  different  times  and  in  different 
measures,  the  time  of  each  producer  would  largely 
be  occupied  in  making  sales  to  his  customers. 
There  would  be  a  saving  of  time  both  to  buyers 
and  to  sellers  if  there  were  a  storehouse  to  which 
utilities  of  all  kinds  were  forwarded  after  pro- 
duction, and  to  which  any  purchaser  could  resort 
when  he  wanted  utilities  of  any  kind.  The  sev- 
eral employers,  rather  than  have  their  effort  dis- 
tracted in  making  sales  at  retail,  could  afford  to 
join  in  employing  a  man  or  two  to  serve  as  inter- 
mediaries between  them  and  their  customers.  If 
they  thus  employed  two  men,  the  least  they  could 
pay  in  wages  would  be  $60  to  each.  Or  a  man, 
perceiving  the  opportunity,  might  offer  to  pay  the 
producers  a  somewhat  lower  price  for  their  wares 
and  take  the  responsibility  for  their  sale,  thus  be- 
coming an  enterpriser  himself.  He  could  not 
charge  at  retail  more  than  the  established  prices, 
but  the  employers  could  afford,  because  of  the  sav- 
ing of  their  time  and  effort,  to  make  that  reduc- 
tion in  the  price  at  wholesale  which  would  enable 
the  intermediary  to  sell  the  utilities  at  retail. 
Thus  would  evolve  the  merchant.  This  differen- 
tiation in  the  occupations  naturally  presupposes 
an  increase  in  the  population  of  the  community,  or 
else  the  shifting  of  the  efforts  of  certain  of  its 
members.  This,  of  course,  would  have  an  effect 
upon  the  volume  of  production  and  upon  prices. 


PRICES  AND  PROFIT  103 

Now  let  it  be  supposed  that  the  employees  en- 
gaged in  the  production  of  the  different  kinds  of 
utilities  were  of  different  degrees  of  efficiency.  If 
to  an  employee  whose  efforts  contributed  to  the 
production  of  utilities  in  less  degree  than  that  of 
the  others  his  employer  were  to  pay  the  same 
wage  as  to  them,  that  employee  would  be  enabled 
to  buy  utilities  in  the  same  proportions  as  the 
more  efficient.  An  organization  with  employees, 
some  of  whom  were  less  efficient  than  others,  would 
not,  however,  produce  the  same  volume  of  utilities 
as  it  would  if  the  efforts  of  each  employee  were 
equal  to  those  of  the  most  efficient.  Therefore,  it 
could  not  produce  utilities  sufficient  to  meet  the 
wants  of  as  many  persons.  At  the  same  prices 
the  employer  would  not  receive  the  same  total  of 
dollars  for  the  utilities  produced.  If  he  were  to 
pay  the  less  efficient  employees  the  same  wages 
as  the  others,  fewer  dollars  would  remain  to  his 
credit  after  the  payment  of  wages.  The  only  way 
he  could  secure  the  same  profit  would  be  by  pay- 
ing the  less  efficient  employees  lower  wages,  or  by 
reducing  the  wages  of  a  number  of,  or  of  all  of,  his 
employees.  But  rather  than  accept  a  reduction, 
the  efficient  employees  would  resume  the  putting 
forth  of  their  effort  separately  and  individually. 
If  the  less  efficient  employee  did  likewise,  he  could 
not  produce  utilities  in  the  same  volume  as  the 
more  efficient.  If  he  were  without  the  resources 
for  individual  production,  and  the  employer  re- 


104  THE  FLOW  OF  VALUE 

fused  to  pay  him  wages  disproportionate  to  the 
results  of  his  effort,  he  would,  other  things  equal, 
be  obliged  to  work  for  lower  wages  than  the  more 
eflScient. 

If  with  an  increase  in  the  population  of  the  com- 
munity there  were  an  increasing  disparity  in  the 
efficiency  of  different  persons  desiring  employ- 
ment, the  different  employers  would  seek  to  obtain 
the  requisite  employees  by  the  payment  of  the  low- 
est wages  each  would  agree  to  accept.  The  low- 
est wage  any  employee  would  accept  would  be  that 
adequate  for  the  purchase  of  the  utilities  neces- 
sary for  his  subsistence.  The  relation  between 
effort  put  forth  and  wants  met  in  our  imaginary 
community  determined  the  subsistence  wage  as 
$60.  But  in  actual  communities  and  with  actual 
persons  the  wage  necessary  for  subsistence  is  vari- 
able. The  highest  wage  an  employer  could  pay 
the  least  efficient  employee,  without  reducing  the 
wages  of  others  or  impairing  his  profit,  would  be 
the  dollars  obtainable,  for  the  utilities  produced, 
exceeding  the  number  obtainable  in  case  he  did  not 
enlist  the  efforts  of  that  employee.  Likewise  the 
highest  wage  he  could  afford  to  pay  any  em- 
ployee, even  the  most  efficient,  would  be  the 
number  of  dollars  obtainable  for  the  utilities 
produced  exceeding  the  dollars  obtainable  in 
case  he  did  not  enlist  the  efforts  of  that  em- 
ployee. 

If,  however,  he  paid  to  every  employee  the  high- 


PRICES  AND  PROFIT  106 

est  wage  thus  determined,  all  of  the  dollars  re- 
ceived would  be  paid  as  wages.  By  reason  of  the 
coordination  of  their  efforts,  however,  the  em- 
ployer produces  a  larger  volume  than  could  have 
been  produced  by  the  various  employees  working 
separately.  No  one  of  the  employees,  not  even 
the  most  efficient,  working  separately  could  have 
produced  utilities  for  which  he  would  obtain  dol- 
lars equal  to  those  his  employer  would  obtain 
through  the  direction  and  coordination  of  his  ef- 
forts. The  employer's  test  of  the  highest  wage  he 
could  afford  to  pay  would  not  be,  therefore,  alone 
the  dollars  he  would  secure  by  reason  of  the  ef- 
forts of  a  particular  employee,  but  the  number  of 
dollars  he  would  have  to  pay  to  enlist  effort  equiv- 
alent to  that  put  forth  by  him.  Therefore,  other 
things  equal,  he  would  pay  no  more  to  one  em- 
ployee than  necessary  to  secure  the  efforts  of 
another  of  equal  efficiency. 

And  so  also  a  man,  of  whatever  degree  of  effec- 
tiveness, will  not  work  for  wage,  if  for  the  utilities 
he  could  produce  working  separately  and  individ- 
ually he  could  obtain  more  dollars  than  he  could 
obtain  as  wage.  A  man  will  not  work  for  a  given 
wage  if  he  can  prevail  upon  his  employer  to  pay  a 
higher  wage,  or  if  he  can  obtain  a  higher  wage 
from  another  employer.  A  man  will  not  work  for 
wage  if,  through  the  coordination  of  the  efforts  of 
others,  he  can  obtain  more  as  profit  than  he  could 
obtain  as  wage. 


106  THE  FLOW  OF  VALUE 

In  strict  commercial  significance,  profit  is  the 
amount  by  which  dollars  received  through  the  con- 
duct of  a  business  exceed  the  dollars  expended  in 
the  conduct  of  that  business.  That  which  the  em- 
ployer pays  for  utilities  for  his  individual  use  and 
consumption  comes  out  of  the  profit  which  he  de- 
rives from  applying  his  effort  in  coordinating  the 
efforts  of  others.  Therefore,  in  the  following 
table,  which  shows  the  changed  relations  between 
effort  put  forth  and  wants  met  due  to  the  efforts 
of  the  employers,  the  surplus  of  the  amounts  re- 
ceived by  them  from  the  sale  of  utilities  over  the 
amounts  paid  as  wage  are  indicated  as  profit. 


TABLE  II 

Price 

Received 

Paid 

Profit 

util- 

Produced hy 

per 

by  Em- 

as 

of  Em- 

ity 

Employer  and 

Unit 

ployer 

uaqes 

ployer 

No.  1 

23  employees — 1,200  units 

$1.50 

$1,800 

$1,380 

$420 

No.  2 

31  employees — 4,800  units 

,50 

2,400 

1,860 

540 

No.  3 

35  employees — 1,800  units 

1.50 

2,700 

2,100 

600 

No.  4 

17  employees —    900  units 

1.50 

1,350 

1,020 

330 

No.  5 

9  employees —    300  units 

2.50 

750 

540 

210 

The  status  indicated  by  this  table,  even  if  it  were 
ever  attained,  could  not  continue.  It  would  be 
changed  by  forces  that  are  always  at  work,  the 
same  forces  that  developed  the  specialized  work- 
man from  the  germ  of  specialization  in  the  saving 
of  effort  in  the  first  exchanges,  and  then  developed 
the  employer.  Population  changes.  Different 
persons  develop  different  inclinations  and  apti- 
tudes, differing  degrees  of  effectiveness,  and  wants 
in  differing  proportions. 


PRICES  AND  PROFIT  107 

Other  things  equal,  it  is  by  means  of  an  increas- 
ing production  in  relation  to  the  effort  expended 
that  profit  is  augmented.  Therefore  producers, 
animated  by  the  desire  for  gain,  strive  to  bring 
about  a  diminution  in  the  ratio  of  the  effort  ap- 
plied to  the  volume  produced.  The  effect  of  such 
a  diminution  has  been  indicated  by  the  transition 
from  the  status  depicted  in  Table  I  to  that  de- 
picted in  Table  II.  A  further  development  would 
be  in  the  differentiation  between  those  who  sup- 
plied substance  and  those  who  transformed  it. 

Let  us  suppose,  by  way  of  example,  that  to  the 
production  of  1200  units  of  Utility  No.  1  were 
necessary  1800  units  of  substance ;  that  is,  one  and 
one-half  units  of  substance  to  one  unit  of  the  final 
utility.  Let  it  be  supposed  that  to  the  production 
of  these  1800  units  of  substance  the  efforts  of  eight 
persons  were  necessary,  and  that  the  efforts  of 
twelve  persons  were  required  to  transform  this 
substance  into  1200  units  of  final  Utility  No.  1. 
Thus  the  efforts  of  twenty  persons  would  be  re- 
quired instead  of  the  efforts  of  twenty-four  to  pro- 
duce the  1200  units  of  Utility  No.  1.  If  there  were 
sale  for  no  more  than  these  1200  units,  four  per- 
sons would  be  deprived  of  employment  in  their 
production.  If  the  previous  price  of  $1.50  per 
unit  could  be  obtained,  these  1200  units  would 
bring  $1800  to  the  enterpriser.  If  he  paid  wage 
of  $60  each  to  the  eight  producers  of  substance 
and  to  the  twelve  remaining  employes,  his  outlay 


108  THE  FLOW  OF  VALUE 

for  wage  would  be  $1200.  He  would  have  $600  as 
profit  instead  of  $420.  Or  more  likely,  if  he  did 
not  assume  responsibility  for  paying  wages  for  the 
production  of  substance  but  paid  producers  for 
supplying  it,  he  would  endeavor  to  pay  the  least  he 
could.  He  would  receive  for  the  final  utilities 
$1800,  of  which  to  his  immediate  employees  he 
would  pay  as  wage  $720,  leaving  $1080  wheref  rom 
to  pay  for  substance  and  obtain  profit. 

If  the  producers  of  substance  put  forth  their  ef- 
forts individually  and  separately,  he  would  bar- 
gain with  them.  The  utilities  necessary  to  the 
existence  of  each  cost  $60.  If  each  producer  of 
substance  produced  250  units,  the  lowest  price  the 
employer  could  pay  would  be  $.24  a  unit.  But 
this  would  allow  no  more  than  a  living  to  the  pro- 
ducer of  substance.  If  it  were  timber  or  coal,  he 
would  continue  to  exhaust  forest  and  mine  with- 
out more  return  than  he  could  obtain  by  working 
for  wage.  If  the  substance  were  foodstuffs  from 
the  soil,  or  fiber  from  plant,  or  meat,  hide,  or  wool 
from  animal,  he  would  have  to  plant  and  till  and 
harvest,  or  breed  and  kill.  But  there  would  be 
producers  of  substance  of  differing  degrees  of  ef- 
ficiency. The  least  that  any  one  could  produce 
in  order  to  obtain  a  living  would  be  250  units. 
Another,  by  reason  of  superior  industry  or  better 
wood  or  coal  or  more  fertile  soil,  might  produce 
400  units  of  substance,  and  another  600  units.  If 
employer  No.  1  could  obtain  the  requisite  1800 


PRICES  AND  PROFIT  109 

units  of  substance  at  $.24  a  unit,  he  would  pay  no 
more.  At  this  price  the  producer  of  400  units 
would  obtain  $96,  the  producer  of  600  units,  $144. 
Then  it  would  be  that  if  the  other  6  producers  of 
substance  produced  250  units  apiece,  the  8  pro- 
ducers would  produce  2500  units  instead  of  1800 
as  before. 

If  employer  No.  1  desired  no  more  than  1800 
units,  he  would  pay  the  lowest  price  for  which  he 
could  obtain  that  quantity.  In  competition  with 
the  producers  of  250  units  each,  the  producers  of 
400  units  and  600  units  would  have  the  advantage. 
They  might  offer  to  sell  to  the  employer  at  the 
lower  prices,  which  would  induce  him  to  purchase 
substance  from  them  in  preference  to  the  other 
producers.  The  least  possible  reduction,  other 
things  equal,  would  serve  this  purpose.  If  they 
were  to  sell  at  $.23i/^  a  unit,  they  would  dispose  of 
their  1000  units  for  $235.  The  enterpriser  would 
still  have  to  pay  $.24  a  unit  for  the  remaining  800 
units  desired.  These  he  could  obtain  from  three 
of  the  producers  if  they  could  manage  to  increase 
their  supply  by  as  much  as  fifty  units,  and  the 
three  other  separate  producers  would  be  unable  to 
gain  a  livelihood  in  the  production  of  substance  of 
that  kind. 

The  producer  of  the  400  units  would  receive  $94, 
and  the  producer  of  the  600  units,  $141.  The  one 
would  have  $34  as  surplus  over  his  subsistence ;  the 
other,  $81.    If  their  effective  productivity  was  due 


110  THE  FLOW  OF  VALUE 

not  so  much  to  industry  and  capacity  as  to  the 
excellence  of  soil  or  timber  or  coal,  there  might  be 
those  who  would  pay  for  the  right  to  utilize  farm, 
forest,  or  mine. 

As  the  population  increased  and  the  specializa- 
tion of  effort  extended,  the  tendency  would  be, 
other  things  equal,  for  the  employers  to  obtain 
larger  profit.  This  would  be  because,  as  utilities 
were  produced  with  diminishing  effort,  there 
would  be  fewer  persons  to  be  supported  in  the 
production  of  any  given  utility.  Therefore,  those 
of  the  capacity  and  inclination  would  not  only  en- 
gage in  the  production  of  new  utilities  but  in  pro- 
duction in  lines  in  which  they  perceived  an  em- 
ployer was  obtaining  profit.  Such  a  one  might  so 
engage  in  production  with  the  intent  of  obtaining 
profit  because  of  the  increasing  demand  due  to  an 
increasing  population,  or  with  the  intent  to  share 
the  profit  of  an  established  employer,  or  both. 

Let  it  be  supposed  that  an  employee,  or  another, 
perceiving  that  employer  No.  1  was  obtaining 
profit,  became  employer  No.  la  in  the  production 
of  Utility  No.  1.  He  would  purchase  substance 
from  its  producers.  The  producers  not  having 
customers  would  be  the  producers  of  250  units 
each  which  employer  No.  1  did  not  buy.  Employer 
No.  la  would  have  to  pay  them  at  least  $.24  a  unit. 
He  could  not  obtain  more  than  750  units,  unless  he 
could  outbid  employer  No.  1  for  a  portion  of  the 


PRICES  AND  PROFIT  111 

output  of  the  other  producers  of  substance.  He 
might  offer  the  producers  of  400  units  and  600 
units  $.24 :  employer  No.  1  might  offer  $.24i/2,  and 
then  employer  No.  la,  $.25.  The  highest  price 
either  could  continue  to  pay  would  be  that  which 
did  not  extinguish  his  profit.  The  fact  that  the 
producers  of  the  larger  quantities  of  substance  ob- 
tained profit  would  stimulate  the  less  efficient  to 
increase  their  production,  or  would  induce  others 
to  enter  upon  this  production.  Then  there  would 
come  to  be  competition  between  the  producers  of 
substance  for  its  sale,  and  between  the  employers 
for  its  purchase.  As  the  supply  was  high  in  rela- 
tion to  demand,  greater  measures  could  be  ob- 
tained for  the  dollar ;  that  is,  its  price  would  dimin- 
ish. As  the  demand  was  high  in  relation  to  the 
supply,  smaller  measures  could  be  obtained  for 
the  dollar — that  is,  its  price  would  advance.  The 
lowest  price  that  could  be  paid  would  be  that  which 
would  enlist  the  number  of  persons  whose  efforts 
were  required  in  the  production.  This  number 
would  be  limited  by  those  whose  efforts  were  just 
sufficient  to  produce  the  supply  for  which,  at  the 
prices  obtainable,  they  could  gain  subsistence. 
Those  producing  larger  quantities  would  at  this 
price,  other  things  equal,  obtain  profit.  It  might 
be  that  an  employer  would  engage  in  the  produc- 
tion of  this  substance.  The  separate  producers 
might  be  willing  to  rent  to  him  or  sell  to  him  the 
sources  from  which  they  derived  substance  at  a 


112  THE  FLOW  OF  VALUE 

rental  equivalent  to  the  profit  they  had  attained 
from  the  production  themselves.  By  the  payment 
of  wages  and  the  coordination  of  effort,  the  em- 
ployer might  so  increase  the  volume  of  production 
that  he  could,  at  the  price  obtainable,  pay  the 
rental,  pay  wages,  and  yet  derive  profit. 

As  there  are  always  differences  in  the  capacity 
of  different  persons,  there  would  be,  even  in  a  low 
stage  of  development,  differences  in  the  credits 
accruing  to  different  persons.  So  long  as  the  least 
efficient  were  in  such  number  that  they  would  be 
compelled  to  work  for  subsistence,  the  lowest  wage 
would  continue  to  be  the  price  of  the  underlying 
essential  utilities  in  their  crudest  and  simplest 
forms.  As  there  was  the  production  of  utilities 
in  greater  volume  in  relation  to  the  effort  ex- 
pended, these  underlying  essential  utilities  would 
tend  to  be  produced  by  the  number  limited  to  those 
whose  efforts  were  required  to  supply  them  in 
volume  for  which  there  was  demand;  that  is,  in 
the  volume  in  return  for  which  the  least  efficient 
would  receive  at  least  the  utilities  necessary  to 
their  subsistence. 

In  each  of  the  various  kinds  of  production  would 
be  engaged  the  less  effective  and  the  more  effec- 
tive. The  credits  accruing  to  the  least  effective 
would  enable  them  to  purchase  only  the  underlying 
essential  utilities,  but  the  credits  accruing  to  the' 
more  effective  would  enable  them  to  purchase 
other  utilities.    Thus  there  wojild  come  to  be  utili- 


PRICES  AND  PROFIT  113 

ties  of  other  kinds  with  ratio  to  the  dollar.  But 
such  a  utility  could  be  purchased  only  by  those 
with  credits  in  excess  of  subsistence.  Of  their 
excess  credits,  some  may  make  expenditure  for 
such  a  particular  utility  and  others  may  not.  As 
credits  pass  to  their  producers  in  excess  of  their 
debits,  they  will  be  enabled  to  purchase  other  utili- 
ties. As  credits  remain  in  the  possession  of  vari- 
ous persons,  they  will  be  enabled  to  purchase  other 
utilities. 


IX 

THE   EFFECT    OF    THE   INTRODUCTION   AND    USE   OP 
MACHINES   UPON    PRICES  AND   PROFIT 

Let  us  continue  the  hypothetical  development 
by  tracing  from  the  status  indicated  in  Table  II 
the  modification  in  the  flow  of  credits  and  debits 
that  would  be  caused  by  the  introduction  of  ma- 
chines. Let  us  suppose  that  employer  No.  3  in- 
vented a  machine  by  means  of  which  ten  employees 
could  produce  3600  units  of  utility  No.  3,  and  that 
to  the  construction  of  this  machine  were  requisite 
the  efforts  of  ten  employees.  With  his  profit 
of  $600  he  could  pay  for  the  construction  of 
the  machine.  When  it  was  placed  in  opera- 
tion, he  would  need  only  ten  employees  to 
produce  double  the  volume  of  utilities  his  organ- 
ization had  previously  produced.  He  would  dis- 
pense with  the  services  of  twenty-five  employees 
and  endeavor  to  find  a  market  for  the  3600  utility- 
units  that  could  be  produced  by  running  his  ma- 
chine to  its  full  capacity.  Twelve  units  of  Utility 
No.  3  had  sufficed  for  each  person.  But  perhaps 
each  person  would  use  more  if  they  were  within 
his  means.    If  each  of  the  remaining  ninety  wage- 

114 


USE  OF  MACHINES  115 

earners  wanted  twenty-four  units  instead  of 
twelve,  there  would  be  an  inunediate  market  for 
2160  units,  but  no  wage-earner  could  afford  to  pay 
more  for  the  twenty-four  units  than  the  eighteen 
dollars  he  had  previously  paid  for  twelve,  unless 
there  were  a  change  in  the  prices  of  the  other  utili- 
ties. If  he  paid  eighteen  dollars  for  twenty-four 
units  instead  of  twelve,  the  price  would  be  seventy- 
five  cents  per  unit.  This  would  yield  the  producer 
$1720.  In  their  production  he  would  have  to  pay 
as  wage  $600.  Therefore,  the  expenditure  for  ef- 
fort enlisted  in  the  direct  operation  of  the  machine 
and  its  repair  would  be  $660.  If  he  had  to  pay  for 
substance,  coal,  and  lubricants  at  the  rate  of 
twenty  cents  per  unit,  the  expenditure  for  these 
items  would  be  $440.  Of  the  $1720  derived  from 
the  sale  of  the  2160  units,  he  would  obtain  as  profit 
$620,  which  would  be  only  $20  more  than  the  profit 
obtained  before  the  introduction  of  the  machine. 
But  by  operating  the  machine  to  its  full  capacity, 
he  could  produce  with  the  same  number  of  em- 
ployees 3600  units  at  an  additional  expense  for 
substance  and  other  materials  of  $280.  Whatever 
he  could  obtain  for  these  additional  1440  units  in 
excess  of  the  expense  of  twenty  cents  per  unit 
would  add  to  his  profit.  If  he  were  to  sell  them 
at  fifty  cents  a  unit,  his  credits  would  be  increased 
by  $720  and  his  profit  by  $432,  making  a  total 
profit  of  $1052. 

Therefore,  if  the  employer  could  sell  these  addi- 


116  THE  FLOW  OF  VALUE 

tional  units  at  fifty  cents,  he  would  obtain  the  addi- 
tional profit  of  $432.  If,  however,  the  purchasers 
of  the  2160  units  were  to  find  out  that  he  had  done 
so  and  complain  because  of  discrimination,  the 
reply  might  be  that  if  he  had  reduced  the  price  of 
all  the  3600  units  to  fifty  cents,  he  would  obtain 
$1800  which  would  leave  as  profit  only  $420,  or  less 
than  the  profit  he  had  obtained  before  the  machine 
was  introduced.  In  this  case,  he  would  prefer  to 
continue  to  produce  only  the  2160  units  which,  if 
sold  at  seventy-five  cents,  one-half  the  price  pre- 
vailing before  the  introduction  of  the  machine, 
would  yield  greater  profit  than  the  production  of 
3600  utilities  if  they  were  sold  for  fifty  cents. 

The  introduction  of  the  machine  deprived 
twenty-five  wage-earners  of  employment.  Let  us 
suppose  that  one  of  these  was  successful  in  in- 
venting a  machine  of  similar  capacity  so  that,  with 
an  expenditure  of  $1380,  he  also  could  produce 
3600  units  of  Utility  No.  3.  If  both  employers  ran 
their  machines  at  full  capacity  they  could  produce 
7200  units  of  Utility  No.  3.  Their  respective  costs 
of  production  would  be  SSYs  cents  per  unit.  Bar- 
gaining conceivably  might  drive  the  price  as  low 
as  forty  cents,  which  would  leave  each  enterpriser 
but  sixty  dollars  as  profit,  no  more  than  the  wage 
paid  each  employee.  There  could  not  be  sold  7200 
units  of  the  utility  unless  there  were  a  vast  in- 
crease in  the  demand.  This  would  mean  not  only 
an  increase  in  the  population,  but  probably  a  de- 


USE  OF  MACHINES  117 

mand  increasing  in  still  greater  ratio.  So  long  as 
the  lowest  wage  were  sixty  dollars,  if  the  demand 
of  each  person  for  the  utilities  and  the  prices  of 
them  remained  the  same,  each  person  would  have 
eighteen  dollars  which  he  could  expend  for  Utility 
No.  3.  At  forty  cents  each,  he  could  buy  forty-five 
units.  If  these  were  in  excess  of  any  possible 
wants  of  each  person,  if,  for  example,  the  demand 
of  every  person  for  himself  and  his  family  aver- 
aged thirty  units,  there  would  be  an  overproduc- 
tion of  fifteen  units  per  person. 

Now  let  us  suppose  that  machines  are  invented 
and  placed  in  operation  in  the  production  of  the 
other  utilities.  The  volume  of  each  is  greatly  in- 
creased, both  in  relation  to  the  number  of  persons 
engaged  in  its  production  and  to  the  population. 
The  fact  that  the  volume  is  increased  in  relation  to 
the  number  of  persons  engaged  in  its  production 
means  that  its  price  can  be  reduced.  That  is,  as  a 
smaller  number  of  persons  have  to  be  supported 
in  the  production  of  each  utility,  fewer  of  other 
utilities  are  needed  to  support  those  engaged  in 
the  production  of  each  utility.  The  fact  that  the 
production  of  a  utility  has  increased  in  volume  in 
relation  to  the  population  not  only  means  that  its 
price  can  be  reduced  but  that  its  price  must  be 
reduced  if  the  increased  volume  is  to  be  sold.  The 
increased  volume  will  not  be  sold  unless  the  utility 
is  wanted  by  members  of  the  population  who  have 
not  been  accustomed  to  buy  it,  and  unless  their 


118  THE  FLOW  OF  VALUE 

command  over  utilities  is  so  increased  that  they 
can  buy  it. 

An  individual,  responsible  for  the  application  of 
his  effort  and  for  the  sale  of  the  utilities  he  pro- 
duces, can,  other  things  equal,  produce  the  largest 
volume  of  which  he  is  capable  by  working  continu- 
ously to  the  limit  of  his  capacity.  An  employer 
responsible  for  the  application  of  the  efforts  of 
himself  and  his  employees  can  produce  the  largest 
volume  of  which  their  efforts  are  capable  if  these 
efforts  are  continuously  applied  to  the  limit  of 
their  capacity.  Continuous  application  to  the 
limit  of  capacity  implies  intervals  of  rest  and  rec- 
reation which  will  enable  continuous  maximum 
exertion.  It  differs  from  the  extraordinary  ex- 
ertion which,  although  it  may  result  in  extraor- 
dinary effect,  is  followed  by  harmful  reaction  and, 
therefore,  can  only  be  spasmodic. 

An  employer  having  property  in  machines,  pay- 
ing for  substance,  and  paying  wages  can  produce 
the  largest  volume  of  utilities  through  the  con- 
tinuous working  of  his  organization  to  the  limit  of 
its  capacity.  His  employees  will  work  to  better 
advantage  by  having  continuous  employment,  and 
so  also  will  those  engaged  in  the  production  of  the 
substance  which  he  buys.  Moreover,  it  is  nearly 
always  the  case  that  the  effectiveness  of  the  appli- 
cation of  cosmic  force  by  means  of  machinery  in- 
creases in  greater  ratio  than  the  number  of  those 


USE  OF  MACHINES  119 

whose  efforts  are  applied  in  its  application.  That 
is,  for  example,  machines  can  usually  be  operated 
to  their  full  capacity  with  less  than  twice  the  num- 
ber of  employees  that  would  be  requisite  to  their 
operation  to  half  capacity.  Therefore,  other 
things  equal,  an  employer  will  endeavor  that  his 
organization  work  as  nearly  to  its  full  capacity  as 
may  be  possible.  If  he  is  prudent  he  will  allow 
his  employees  intervals  adequate  for  rest  and  rec- 
reation, and  not  overwork  his  machines.  Other 
things  equal,  he  will  keep  his  organization  thus  at 
work  if  he  can  obtain  profit  greater  than  would 
accrue  from  the  production  of  a  smaller  volume — 
a  volume  that  would  result  from  working  to  the 
limit  of  capacity  part  of  the  time  or  working  to  less 
than  capacity  all  of  the  time. 

Inasmuch  as  an  instrument  of  production  may 
be  utilized  from  the  time  it  is  installed  until  it  is 
worn  out,  destroyed,  or  discarded,  it  may  be  a 
factor  in  the  production  of  utilities  throughout 
that  period.  When  such  an  instrument  has  been 
constructed  it  is  paid  for  by  him  to  whom  property 
in  it  passes.  He  may  continue  to  have  property  in 
it  during  the  period  of  its  usefulness,  or  he  may 
transfer  his  property  in  it  at  one  or  another  time 
during  that  period. 

The  purchaser  of  such  an  instrument  is  obliged 
to  make  payment  for  all  of  the  force  that  has  been 
applied  in  its  production.    Payment  for  the  effort 


120  THE  FLOW  OF  VALUE 

applied  at  each  stage  of  production,  and  for  the 
resultant  product,  has  been  at  the  prices  deter- 
mined by  the  various  interrelations  and  inter- 
workings  of  supply  and  demand.  If  the  producer 
of  such  an  instrument  were  to  sell  it  at  a  price 
equivalent  to  the  debits  incurred  in  its  production, 
he  would,  other  things  equal,  be  enabled  to  produce 
another  such  instrument,  but  he  would  obtain  no 
profit  from  doing  so.  Therefore,  he  would  not 
continue  in  that  production  if  he  could  obtain 
profit  by  applying  his  effort  and  resources  in  other 
ways. 

The  producer  of  an  instrument  of  production 
would,  however,  endeavor  to  obtain  for  it  the  high- 
est price  he  could.  If  there  were  two  or  more  pro- 
ducers of  instruments  of  a  given  kind,  a  purchaser 
would  pay  no  more  for  one  of  them  than  the  low- 
est price  at  which  he  could  obtain  it  from  any  pro- 
ducer. Competition  conceivably  might  force  its 
price  to  the  lowest  which  the  least  efficient  pro- 
ducer would  accept  rather  than  not  produce  the 
instrument,  or  rather  than  not  sell  it  if  it  were  pro- 
duced and  in  stock.  If  an  instrument  could  be  ob- 
tained from  only  one  producer,  or  if  the  producers 
were  protected  in  its  construction  and  sale  by  pat- 
ents, its  cost  of  production  might  be  a  compara- 
tively unimportant  factor  in  the  price  that  could 
be  obtained. 

The  highest  price  a  purchaser  would  pay  would 
depend  upon  the  addition  to  his  profit  he  believed 


USE  OF  MACHINES  121 

would  be  obtainable  by  means  of  its  utilization. 
If  the  instrument  were  a  new  invention  that  dem- 
onstrably would  so  enhance  the  application  of 
human  effort  that  there  would  be  a  large  increase 
in  the  volume  of  utilities  produced  in  relation  to 
the  number  of  persons  engaged,  he  would  have  to 
estimate  the  prices  obtainable  for  the  increased 
volume  and  the  proportions  of  the  total  credits 
secured  at  these  prices  that  would  accrue  as  profit. 
If  the  instrument  were  of  a  kind  the  efficiency 
of  which  had  been  established  through  experience, 
the  purchaser's  calculation  might  not  be  so  much 
concerned  with  the  effect  upon  his  immediate 
profit  as  with  the  effect  upon  his  continuing  profit. 
The  cost  of  the  machine  would  have  to  be  appor- 
tioned through  the  costs  of  production  of  the  total 
volume  of  utilities,  in  the  production  of  which  it 
was  a  factor,  from  the  time  of  its  installation  until 
the  termination  of  its  usefulness.  If  it  were  an 
instrument  utilized  in  the  production  of  a  utility 
for  which  there  were  general  and  continuing  de- 
mand, its  period  of  usefulness  might  terminate 
only  when  it  was  worn  out.  This  period  would  be 
longer  or  shorter  in  accordance  with  the  intensity 
of  its  operation  and  the  feasibility  with  which  it 
could  be  repaired  and  renewed ;  the  cost  of  repairs 
and  renewals  would  also  have  to  be  apportioned 
throughout  the  period  of  its  utilization.  The  pe- 
riod of  usefulness  might  be  terminated  by  the  in- 
vention, construction,  and  utilization  of  another 


122  THE  FLOW  OF  VALUE 

machine  by  means  of  which  the  same  or  a  greater 
volume  of  utilities  could  be  produced  with  the  ap- 
plication of  still  less  of  human  effort.  If  the  pro- 
ducer of  utilities  by  means  of  the  machine  was  to 
secure  the  latter  machine  and  substitute  it  for  the 
old,  further  complications  would  arise  in  adjust- 
ing his  costs.  If  an  instrument  were  available 
only  in  the  production  of  a  utility  of  passing  de- 
mand, such  as  a  puzzle  or  the  implements  for  a 
game  of  transitory  vogue  or  an  article  of  apparel 
of  fleeting  fashion,  there  might  have  to  be  the  con- 
fidence in  the  attainment  of  high  profit  per  unit  of 
utility  produced  to  justify  its  purchase. 

The  price  of  an  instrument  of  production  at  one 
or  another  time  during  its  period  of  usefulness 
would  be  determined  by  similar  considerations. 
Other  things  equal,  a  purchaser  would  not  pay  as 
much  for  a  machine  that  through  use  had  suffered 
deterioration  as  for  a  new  one ;  though  perhaps  he 
would  be  willing  to  pay  more  for  a  machine  that 
had  demonstrated  its  efl&ciency  than  for  one  new 
and  untried.  In  any  event,  the  seller  would  en- 
deavor to  obtain  as  much  as  he  could,  and  the 
buyer  to  pay  as  little.  What  he  could  pay  would 
be  determined  by  his  calculation  of  the  effect  upon 
his  profit  that  would  result  from  his  buying  or  not 
buying  the  machine. 

If  at  any  time  the  volume  of  utilities  produced 
by  means  of  the  instruments  of  a  given  kind  so 
exceeded  the  demand  for  those  utilities  that  the 


USE  OF  MACHINES  12S 

aggregate  of  credits  obtained  from  their  sale  did 
not  meet  the  cost  of  production,  there  would  have 
been  not  only  an  overproduction  but  an  over- 
utilization  of  such  instruments.  Those  of  the 
least  eflScient  producers,  other  things  equal,  would 
be  forced  into  idleness,  which  would  have  to  con- 
tinue until  the  demand  for  the  utilities  had  so  in- 
creased that  they  again  could  be  operated  with 
profit. 

Such  instruments  of  production  as  tools,  ma- 
chines, and  appliances  usually  can  be  installed  and 
operated  at  one  place  or  another  place  with  equal 
effectiveness  in  so  far  as  their  immediate  opera- 
tion is  concerned,  or  can  be  transferred  from  one 
place  to  another.  The  cost  of  installation  will 
vary,  other  things  equal,  with  the  cost  of  trans- 
portation from  the  place  of  production  to  the  place 
of  installation. 

Instruments  of  production  such  as  the  struc- 
tures in  which  and  in  connection  with  which  ma- 
chines are  operated,  can  in  many  cases  be  erected 
at  one  place  or  another  place,  but  cannot  readily 
be  moved.  Were  there  no  consideration  of  loca- 
tion, the  factors  that  determine  the  price  of  a 
structure  would  be  the  same  as  those  that  deter- 
mine the  price  of  a  machine  or  an  appliance.  The 
place  where  substance  is  transformed  may,  how- 
ever, have  an  important  and  even  a  controlling 
influence  upon  profit.  Certain  processes  of  trans- 
formation may  the  mare  advantageously  be  con- 


124  THE  FLOW  OF  VALUE 

ducted  near  the  sources  of  substance.  If  diverse 
substances  are  utilized,  they  may  the  more  advan- 
tageously be  conducted  near  the  source  of  one 
substance,  or  near  the  source  of  another,  or  per- 
haps at  a  place  more  or  less  approximating  an 
equal  distance  from  both.  Or  it  may  be  that 
greater  profit  will  accrue  if  transformation  be 
effected  at  a  place  nearer  the  market  for  the  utili- 
ties produced,  even  though  it  be  more  remote  from 
the  sources  of  substance.  The  choice  will  be  de- 
termined by  the  effect  upon  profit  of  the  various 
elements  that  would  enter  into  the  cost  of  produc- 
tion at  one  place  or  another,  and  the  cost  of  mar- 
keting from  one  place  or  another. 

The  structure  in  which  a  machine  is  operated, 
or  in  connection  with  which  any  of  the  processes 
of  production  are  effected,  must  be  erected  upon 
land.  Structures,  the  machines  and  appliances 
utilized  in  connection  with  them,  and  the  land  upon 
which  the  structures  are  erected  are  designated  a 
"plant.'*  This,  perhaps,  is  because  they  are  at- 
tached to  the  ground  as  is  a  plant,  and  also,  per- 
haps, because  they  bear  somewhat  of  the  relation 
to  the  utilities  they  produce  as  does  a  plant  to  the 
fruit  it  yields. 

A  factor  in  the  cost  of  a  plant  is  the  cost  of  the 
land.  Land  may  be  a  source  of  substance  of  per- 
ennial yield,  as  a  farm,  a  ranch,  a  plantation,  a 
truck  garden ;  or  it  may  be  a  source  of  substance 


USE  OF  MACHINES  1«5 

not  replaced  when  taken  from  it,  as  a  mine  or  a 
forest;  or  it  may  form  part  of  an  instrument  of 
production,  that  is,  of  a  plant,  as  when  it  is  the  site 
of  a  manufacturing  establishment,  or  of  a  ware- 
house, or  of  a  retail  store,  or  the  right  of  way  of  a 
railroad  company;  or  it  may  be  a  final  essential 
utility,  as  when  it  is  the  site  of  a  building  that 
affords  shelter;  or  it  may  be  a  final  utility  minis- 
tering to  the  comfort  and  gratification  of  the 
owner,  as  lawn  or  woodland  surrounding  a  resi- 
dence. Or  it  may  serve  two  or  more  of  these  pur- 
poses, as  when  part  of  the  land  adjoining  a  resi- 
dence is  used  as  farm,  truck  garden,  or  orchard,  or 
when  adjacent  to  a  dwelling  is  a  shop  in  which  the 
occupant  engages  in  economic  production. 

The  price  of  land  is  determined  by  interrelations 
between  supply  and  demand,  as  is  the  price  of  all 
other  utilities.  But  as  land  is  inunovable,  supply 
and  demand  for  land  in  a  particular  area  may  be 
very  nearly  or  quite  independent  of  the  supply 
and  demand  for  land  otherwise  situated.  In  the 
sale  of  land,  as  of  any  other  utility,  the  owner  will 
endeavor  to  obtain  as  much  for  it  as  he  can,  the 
buyer  to  pay  as  little  as  he  can.  Its  price  will  be 
the  highest  that  any  one  will  pay  for  it  for  any 
purpose  to  which  he  may  wish  to  devote  it.  The 
price  of  land  utilized  as  a  farm  or  a  ranch,  and 
available  for  no  other  purpose,  will  depend  upon 
the  profit  that  the  buyer  believes  he  can  obtain  by 
means  of  its  utilization  as  a  farm  or  a  ranch. 


126  THE  FLOW  OF  VALUE 

Land  which  has  been  utilized  as  a  farm,  but  which 
a  buyer  believes  can  be  utilized  as  sites  for  dwell- 
ings, may  be  sold  at  a  price  upon  which  the  buyer 
thinks  he  can  obtain  profit  by  cutting  it  up  into 
lots.  Land  so  situated  as  to  be  available  for  a 
manufacturing  site,  a  warehouse,  or  a  store  will 
command  the  price  upon  which  a  buyer  believes  he 
can  obtain  profit  by  means  of  its  utilization  for 
such  a  purpose.  Land  utilized  for  residence,  if  it 
is  so  situated  that  it  can  be  utilized  for  commer- 
cial purposes,  may  bring  a  higher  price  than  if  it 
were  available  only  for  residence.  A  man  who 
desires  to  buy  it  for  continued  use  as  a  residence 
will  have  to  pay  as  much  as  could  be  obtained  from 
him  who  believes  he  can  secure  profit  from  its 
utilization  as  part  of  an  instrument  of  produc- 
tion. 

It  seems  absurd  to  talk  of  the  cost  of  production 
of  land.  But  from  time  immemorial  the  struc- 
tures erected  upon  land — roads,  fences,  drainage, 
and  everything  so  attached  to  it  as  to  be  impos- 
sible or  impracticable  of  removal  or  of  separate 
utilization — ^have  been  held  to  be  part  of  the  land. 
Thus  land  and  what  are  designated  as  improve- 
ments are  classified  as  real  estate.  There  has 
been  the  cost  of  the  improvements  and  there  have 
been  the  taxes.  Therefore,  it  is  not  entirely 
anomalous  to  speak  of  the  cost  of  production  of 
real  estate.  The  owner  of  real  estate  will  en- 
deavor not  to  sell  it  for  less  than  its  total  cost  to 


USE  OF  MACHINES  127 

him,  whether  or  not  it  has  been  **  improved. "  In 
any  event  he  will  endeavor  not  to  sell  it  for  less 
than  can  be  obtained  for  adjoining  and  equally 
available  land. 

As  a  population  increases,  land  once  so  remote 
as  not  to  be  available  for  any  purpose  may  yield 
profit  if  cultivated  as  a  ranch  or  a  farm.  As 
centers  of  population  develop  contiguously,  it  may 
become  available  for  residence.  As  it  comes 
within  the  limits  of  town  or  city,  it  may  be  avail- 
able for  sites  for  manufacturing  or  mercantile 
establishments.  The  increases  in  the  prices  that 
can  be  obtained,  as  its  situation  causes  it  to  be 
more  and  more  available  for  that  utilization  by 
means  of  which  greater  and  greater  degrees  of 
profit  can  be  secured,  have  been  designated  ''un- 
earned increment,"  because  the  increased  avail- 
ability has  been  due  to  no  effort  of  the  owner. 
During  these  progressive  increases  in  the  price, 
however,  property  in  the  land  has  usually  been 
transferred  many  times.  It  may  have  been 
bought  from  time  to  time  by  those  who  believed  in 
its  availability  increasing  in  the  future;  that  is, 
because  of  its  potential  availability.  Their  belief 
often  is  justified  and  often  is  not.  Moreover,  it 
is  not  always  that  increased  availability  has  not 
been  due  to  effort  of  the  owner.  For  example, 
remote  and  uncultivated  land  granted  by  govern- 
ment to  the  projectors  of  a  railroad  acquires 
availability  because  the  railroad  affords  facility 


128  THE  FLOW  OF  VALUE 

for  transportation  that  would  not  otherwise  have 
come  to  it. 

It  is  because  of  the  facility  for  obtaining  sub- 
stance, or  employees,  or  marketing  products  that 
land  becomes  available  for  manufacturing  sites. 
It  is  the  contiguity  of  oflSce  buildings  to  other  office 
buildings  between  whose  occupants,  and  between 
whose  occupants  and  their  patrons,  there  must  be 
frequent  intercourse,  the  convenience  of  banks, 
hotels,  theaters,  and  retail  establishments  for  the 
service  of  the  greatest  number  of  patrons,  that 
cause  the  high  prices  of  land  whereon  such  build- 
ings are  erected.  There  would  not  be  such  high 
prices  were  not  profit  obtained  by  those  who  so 
utilized  the  land,  and  these  would  not  obtain  profit 
were  there  not  an  intensity  of  demand  for  the 
utilities  produced  by  means  of  that  utilization. 
Therefore  the  so-called  unearned  increment  ap- 
plies not  only  to  those  who  have  property  in  the 
land,  but  to  every  one  who  obtains  utilities  pro- 
duced by  means  of  its  utilization.  The  so-called 
unearned  increment  arises  from  interrelation  be- 
tween supply  and  demand  which  enables  high 
profit  to  be  obtained  from  its  utilization.  There 
may  be  changes  in  these  interrelations.  Because 
of  mutations  in  the  markets  for  products,  the 
prices  obtainable  for  manufacturing  or  mercantile 
sites  may  decrease.  Streets  once  frequented  by 
purchasers  of  means  may  become  deserted  by 
them.    Thus  land  for  which  increasing  prices  have 


THE  RELATIVITY  OF  HUMAN  EFFORT     145 

the  fundamental  factors  may  be  reclassified  in  two 
groups : 

First — The  number  of  persons  engaged  in  the 

production  of  utilities,  and  the  force  applied 

by  them. 
Second — The  aggregate  of  utilities  produced, 

and  the  proportions  in  which  they  become  the 

property  of  different  persons. 

Human  beings  apply  force  to  sources  of  sub- 
stance and  to  substance.  The  results  of  that  ap- 
plication meet  the  wants  of  human  beings. 

The  utilities  to  the  production  of  which  each 
person  contributes  must  meet  the  wants  of  others 
in  order  that  he  may  obtain  from  them  the  utili- 
ties that  meet  his  wants.  The  effort  of  one  per- 
son may  result  in  the  production  of  utilities  of  a 
given  kind  sufficient  to  meet  the  wants  of  a  greater 
number  of  persons  than  the  utilities  of  the  same 
kind,  or  of  another  kind,  produced  by  another  per- 
son. There  will  be  differences  not  only  in  the  vol- 
umes of  respective  utilities  produced  by  respective 
persons,  but  also  in  the  wants  of  different  persons 
for  these  respective  utilities.  As  each  person 
contributes  in  greater  or  less  degree  to  the  pro- 
duction of  utilities  which  others  want,  he  will  re- 
ceive in  greater  or  less  proportion  of  the  utilities 
which  others  produce. 

Correlative  with  the  production  of  utilities  is 


146  THE  FLOW  OF  VALUE 

the  buying  and  selling  of  utilities;  that  is,  the 
transfer  of  property  in  them.  In  every  utility 
and  in  all  utilities  there  is  property.  Property  in 
final  utilities  must  be  either  in  those  who  have 
them  for  sale,  or  in  those  who  have  purchased 
them  for  use.  A  man  may  have  property  in  util- 
ities produced  by  the  application  of  effort  that  has 
emanated  from  himself,  or  by  the  application  of 
effort  that  has  emanated  from  others.  If  he  buy 
utilities,  even  though  they  have  been  produced  by 
the  efforts  of  others,  he  applies  his  own  effort  in 
their  purchase  in  that  his  mind  determines  upon 
the  purchase  and  takes  part  in  the  determination 
of  the  price.  If  he  sell  utilities,  even  though 
they  have  been  produced  by  the  efforts  of  others, 
his  own  effort  is  applied  in  determining  that  they 
will  be  sold,  and  in  taking  part  in  the  determina- 
tion of  the  price.  Thus  buying  and  selling  are 
determined  by  effort  of  the  mind.  Demand  un- 
derlies buying  and  supply  underlies  selling. 

It  is  the  aggregate  demand  of  all  purchasers 
for  a  given  final  utility  that  determines  the  vol- 
ume in  which  it  will  be  bought  by  them.  The  de- 
gree to  which  any  person  can  exert  demand  will 
depend  upon  the  demand  for  the  efforts  or  the 
results  of  efforts  in  which  he  has  property.  The 
effort  requisite  to  the  production  of  a  given  vol- 
ume of  utilities  is  that  of  those  who  will  have  to 
be  supported  in  that  production.    Or  if  portions 


THE  RELATIVITY  OF  HUMAN  EFFORT      147 

of  the  effort  of  the  same  persons  be  applied  in  the 
production  of  utilities  of  different  kinds,  there 
must  be  received  from  the  sale  of  all  of  the  utili- 
ties of  the  different  kinds  that  which  will  support 
all  of  the  persons  engaged  in  their  production 
and  all  who  are  dependent  upon  them.  If  all  of 
those  receiving  utilities  do  not  directly  contribute 
to  the  support  of  those  whose  efforts  are  put  forth 
in  their  production,  they  must  contribute  to  the 
support  of  others  who  must  contribute  to  the  sup- 
port of  those  whose  efforts  are  thus  put  forth. 
Or  else  they  will  be  supported  without  making  any 
contribution  to  the  support  of  others.  Thus  there 
is  a  relation  between  the  effort  expended  in  pro- 
duction, the  number  of  persons  applying  that  ef- 
fort, the  volume  of  utilities  which  results  from 
that  application,  and  the  number  of  persons  whose 
wants  are  met  by  that  volume. 

As  each  person  pays  as  little  as  he  can  for  that 
which  he  receives  and  parts  with  as  little  as  he 
can  for  what  he  obtains,  it  follows  that  no  one 
will  pay  more  to  one  person  for  given  utilities 
than  that  for  which  he  can  obtain  them  from  an- 
other. Those  who  pay  wages  are  responsible  for 
the  production  and  sale  of  utilities.  The  em- 
ployer will  pay  no  more  wage  to  employees  of  the 
respective  grades  of  eflSciency  than  that  for  which 
he  can  obtain  the  efforts  of  other  employees  of 
like  efficiency.    Thus  there  is  the  tendency  for 


148  THE  FLOW  OF  VALUE 

each  person  engaged  in  production  to  receive  pay- 
ment in  proportion  to  his  contribution  to  produc- 
tion. 

It  is  through  those  responsible  for  the  sale  to 
the  final  purchaser  of  the  final  utilities  that  all  of 
the  forces  applied  in  production  converge  in  meet- 
ing the  wants  of  all  persons.  Therefore  it  is 
through  those  thus  responsible  that  are  balanced 
the  forces  applied,  the  number  of  persons  en- 
gaged in  the  application,  and  the  utilities  pro- 
duced, on  the  one  side;  the  number  of  persons 
whose  wants  are  met  by  these  utilities,  and  the 
proportions  in  which  these  utilities  flow  to  them, 
on  the  other  side. 

Each  person  buys  utilities  that  meet  his  wants. 
As  his  wants  for  the  essential  utilities  continue,  he 
is  obliged  continually  to  buy  of  the  essential  util- 
ities. Therefore,  there  must  be  the  continual  pro- 
duction of  the  essential  utilities.  He  exercises  a 
certain  range  of  choice  as  to  the  essential  utilities 
he  will  buy,  and  as  to  the  less  essential  and  non- 
essential utilities  he  will  buy.  The  fact  that  he 
buys  certain  utilities  to  meet  certain  wants  at  one 
time  affords  some  indication  that  he  will  buy  such 
utilities  to  meet  those  wants  at  another  time. 
Therefore,  producers  are  led  to  continue  in  the 
production  of  utilities  which  they  believe  will 
meet  wants ;  that  is,  for  which  they  believe  there 
will  be  demand.  Those  responsible  for  produc- 
tion will  tend  to  continue  in  the  production  of 


THE  RELATIVITY  OF  HUMAN  EFFORT     149 

utilities  of  the  kinds  for  which  they  will  receive 
the  greater  return.  Thus  it  is  that  the  proportion 
in  which  respective  final  utilities  are  bought  by 
final  purchasers  tends  to  determine  the  number 
of  those  who  will  continue  to  be  responsible  for 
their  respective  production,  and  the  number  of 
those  who  will  be  employed  as  wage-earners  in 
their  respective  production. 

From  all  sources  of  substance  are  obtained  the 
substances  that  are  transformed  into  the  final  util- 
ities. Substance  may  be  bought  at  each  stage  by 
those  responsible  for  its  furtherance  toward  the 
final  transformation,  and  the  product  resulting 
from  the  application  of  their  efforts  may  be  sold 
to  those  responsible  for  its  furtherance  to  another 
stage.  As  substance  of  one  kind  can  be  trans- 
formed through  any  of  various  processes  into  final 
utilities  of  different  kinds,  there  is  the  responsi- 
bility at  each  stage  for  the  direction  that  further- 
ance shall  take.  Thus  it  is,  for  example,  that  there 
are  those  who  buy  hides  for  transformation  into 
shoes,  others  who  buy  them  for  transformation 
into  trunks,  and  others  for  transformation  into 
harness.  All  of  a  given  volume  of  substance  may 
be  furthered  in  its  transformation  into  utilities  of 
the  same  kind,  or  in  different  proportions  in  trans- 
formation into  utilities  of  different  kinds.  Each 
stage  of  furtherance  involves  the  application  of 
effort.  The  effort  of  a  number  of  persons  may 
be  applied  exclusively  in  the  transformation  from 


150  THE  FLOW  OF  VALUE 

one  stage  to  another,  or  portions  of  the  respective 
efforts  of  many  persons  may  be  so  applied. 
Whether  the  effort  of  all  of  the  persons  engaged 
be  exclusively  applied  at  one  stage  or  another, 
or  whether  portions  of  their  effort  be  so  applied, 
there  is  involved,  in  the  production  of  a  given 
volume  of  final  utilities  of  whatever  kind,  a  total 
of  effort.  The  prices  -obtainable  for  final  utilities 
determine  the  proportions  in  which  effort  is  ap- 
plied in  the  respective  phases  of  the  production 
of  utilities  of  each  kind. 

Those  who  respectively  assume  the  responsibil- 
ity for  the  transformation  at  each  stage  are 
obliged  to  receive  credits  that  at  least  offset  their 
debits,  if  they  are  to  continue  in  the  respective 
phase  of  production.  If  for  example,  the  sub- 
stance transformed  be  wool,  the  final  utilities  in 
the  form  of  clothing  emerging  from  the  shop  of  the 
tailor  have  to  be  suflScient  at  least  for  that  number 
of  persons  whose  efforts  produce  credits  that  at 
least  offset  the  debits  incurred  by  the  grower  of 
sheep,  the  shearers,  -cleaners,  and  carders  of  wool, 
the  weavers  of  cloth,  and  the  makers  of  the  cloth- 
ing. 

The  aggregate  of  utilities  produced  is  composed 
of  the  results  of  the  efforts  of  all  of  the  persons 
engaged  in  production.  The  effort  applied  to- 
ward the  production  of  final  utilities  of  all  kinds 
is  the  aggregate  of  the  efforts  applied  toward  the 
production  of  final  utilities  of  each  kind.    All  per- 


THE  RELATIVITY  OF  HUMAN  EFFORT      151 

sons  are  using  and  consuming  final  utilities  at  the 
same  time  that  all  persons  engaged  in  production 
are  putting  forth  their  efforts  in  ways  that  di- 
rectly or  indirectly  further  the  production  of  final 
utilities.  The  proportion  of  the  aggregate  effort 
devoted  to  the  production  of  the  essential  under- 
lying utilities  will  determine  the  proportion  that 
can  be  devoted  to  the 'production  of  other  utilities. 
The  less  the  proportion  of  effort  required  in  the 
production  of  the  essential  un(Jerlying  utilities, 
the  less,  other  things  equal,  will  be  the  proportion 
of  effort  required  to  obtain  the  credits  with  which 
they  can  be  purchased.  That  is,  the  smaller  the 
number  of  persons  who  produce  the  essential  un- 
derlying utilities,  the  less  will  be  the  proportion 
of  the  effort  of  others,  that  is  of  the  aggregate  of 
effort,  required  to  supply  them  with  the  things 
they  want.     And  so  also  with  other  utilities. 

The  preceding  paragraphs  lead  to  the  deduction 
that  there  must  be  a  relation  between 'the  effort 
expended  in  the  production  of  utilities  of  each 
kind  and  the  effort  expended  in  the  production  of 
utilities  of  every  other  kind.  This  is  true  even 
through  transactions  so  circuitous  that  it  is  diffi- 
cult to  perceive  that  it  is  really  the  exchange  of 
the  results  of  effort  which  underlies  them.  For 
example,  when  a  Western  ranchman,  who,  after 
applying  effort  for  a  week,  buys  with  his  wage 
from  the  nearest  store  a  suit  of  clothes  made,  in 
a  remote  city,  of  wool  from  the  hills  of  New  Eng- 


16«  THE  FLOW  OF  VALUE 

land  and  of  cotton  from  the  plantations  of  the 
South,  there  has  been  obtained  in  exchange  for 
his  week's  work  the  results  of  the  effort  of  thou- 
sands of  persons. 

.  As  persons  of  high  degrees  of  skill  and  ca- 
pacity are  comparatively  few,  the  volume  of  that 
production  to  which  the  exclusively  applied  effort 
of  such  individuals  is  requisite  will  be  small  in 
relation  to  the  entire  population.  But  when  such 
effort  is  exerted  in  directing  and  coordinating  the 
efforts  of  those  of  lower  capacity,  utilities  are 
produced  in  far  greater  volume  in  relation  to  the 
effort  expended  than  would  be  possible  without 
such  direction.  This  is  especially  the  case  with 
great  administrative  ability,  which  is  rare  indeed. 
Then  again,  while  great  creative  ability  may  find 
expression -in  only  a  few  architectural  monuments, 
a  few  paintings,  a  few  statues,  a  few  books,  a  few 
musical  compositions,  any  one  of  these  may  con- 
tribute to  the  intellectual  or  emotional  elevation  of 
thousands.  The  great  creative  ability  of  an  in- 
ventor may  find  expression  in  a  machine  that 
vastly  enhances  the  production  of  utilities  of  gen- 
eral demand. 

To  recapitulate:  the  utilities  that  meet  human 
wants  are  produced  by  the  application  of  human 
effort;  no  more  of  wants  can  be  met  than  are 
supplied  with  the  results  of  effort.  Human  ef- 
fort is  applied  in  different  proportions  to  meet 
human  wants  in  different  proportions.     The  pro- 


THE  RELATIVITY  OF  HUMAN  EFFORT     163 

portions  in  which  effort  is  applied  in  the  produc- 
tion of  the  utilities  of  the  different  kinds,  and  the 
proportions  in  which  these  utilities  pass  into  the. 
possession  of  different  persons,  are  determined  by 
the  number  of  persons  engaged  in  the  production 
of  utilities  of  a  given  kind  whose  wants  are  met 
by  the  number  of  persons  respectively  engaged  in 
the  production  of  utilities  of  other  kinds. 


XII 

THE  RELATIVITY    OF    PRICES 

The  relation  between  the  respective  measures 
of  force  applied  by  different  individuals  in  pro- 
duction, and  the  proportions  in  which  the  results 
of  that  application  become  the  property  of  differ- 
ent individuals,  finds  expression  in  price. 

As  the  dollar  is  a  unit  which  measures  the  rela- 
tion of  force  applied  to  wants  met,  and  all  wants 
are  met  by  the  application  of  force,  it  is  through 
buying  and  selling  in  terms  of  dollars  that  the 
force  applied  in  producing  utilities  of  a  given  kind 
is  balanced  against  the  force  applied  in  producing 
utilities  of  another  kind.  It  is  human  beings  who 
are  responsible  for  the  results  of  the  application 
of  force  which  are  bought  and  sold;  it  is  human 
beings  who  receive  dollars  for  the  results  of  effort 
for  which  they  are  responsible ;  and  to  human  be- 
ings are  paid  dollars  for  the  results  of  effort  for 
which  they  are  responsible.  That  is,  while  dollars 
are  paid  for  utilities,  they  are  paid  to  human  be- 
ings ;  while  dollars  are  received  for  utilities,  they 
are  received  by  human  beings. 

Let  it  be  supposed,  for  example,  that  to  the 
production  of  a  volume  of  utilities  x,  consisting 

154 


THE  RELATIVITY  OF  PRICES  155 

of  120  units,  are  requisite  the  efforts  of  a  dozen 
persons;  and  that  to  the  production  of  a  volume 
of  utilities  y,  consisting  of  240  units,  are  likewise, 
requisite  the  efforts  of  a  dozen  persons.  Let  it 
be  supposed  that  each  of  the  twelve  persons  pro- 
ducing the  utilities  x  wants  twenty  units  of  utility 
y,  and  each  of  the  twelve  persons  producing  util- 
ity y  wants  ten  units  of  utility  x.  The  results  of 
the  efforts  of  one  group  of  twelve  persons  exactly 
balance  the  results  of  the  efforts  of  the  other 
group  of  twelve  persons.  If  to  the  production  of 
each  utility  the  efforts  of  each  person  have  con- 
tributed in  equal  degree,  the  effort  of  each  of  the 
first  group  has  resulted  in  the  production  of  ten 
units  of  utility  x,  and  the  effort  of  each  of  the 
second  group  has  resulted  in  the  production  of 
twenty  units  of  utility  y.  The  ratio  to  the  unit 
of  exchange  would  be  ten  units  of  utility  x  and 
twenty  units  of  utility  y.  If  this  unit  of  ex- 
change be  the  dollar,  one  dollar  will  purchase 
ten  units  of  utility  x  and  twenty  units  of  util- 
ity «/. 

Now  let  it  be  supposed  that  there  are  many 
groups,  each  composed  of  persons  engaged  in  the 
production  of  utilities  of  a  given  kind.  The  util- 
ities produced  by  each  group  are  wanted  by  vari- 
ous individuals  of  the  other  groups.  The  utilities 
produced  by  each  of  the  several  groups  may  be 
wanted  by  the  individuals  of  other  groups  in 
different  proportions.     The  measure  of  utilities 


156  THE  FLOW  OF  VALUE 

of  any  kind  that  will  be  sold  for  a  dollar  depends 
upon  the  measures  of  utilities  of  other  kinds  that 
can  be  bought  for  a  dollar.  If  the  demand  is 
greater  in  relation  to  the  supply  of  utilities  of  a 
given  kind  produced  by  a  certain  proportion  of 
effort,  than  the  demand  in  relation  to  the  supply 
of  utilities  of  another  kind  produced  by  the  same 
proportion  of  effort,  the  dollar  will  purchase 
more  of  utilities  of  the  latter  kind  than  of  the 
former.  Therefore,  while  the  dollar  in  relation 
to  one  utility  is  a  measure  of  the  result  of  force 
applied  to  matter,  and  the  dollar  in  relation  to 
another  utility  is  a  measure  of  the  result  of  force 
applied  to  matter,  the  dollar  does  not  indicate 
that  equivalent  measures  of  force  have  been  ap- 
plied. It  indicates  that  the  respective  results 
of  the  respective  measures  of  force  applied  are 
equivalent  from  the  standpoint  of  meeting  human 
wants. 

Other  things  equal,  the  utilities  produced  in 
greatest  volume  in  relation  to  the  effort  expended 
are  those  that  would  be  sold  at  the  lowest  price. 
That  is,  a  greater  measure  could  be  obtained  for 
the  dollar  than  of  other  utilities  in  the  production 
of  which  a  relatively  greater  proportion  of  effort 
is  required.  The  reason  for  this  is  that  a  rela- 
tively smaller  number  of  persons  need  to  be  sup- 
ported in  their  production.  Therefore,  other 
things  equal,  the  prices  of  respective  utilities  of 
different  kinds  would  tend  to  be  determined  by  the 


THE  RELATIVITY  OF  PRICES  157 

number  of  persons  engaged  in  their  respective 
production.  But,  because  of  difference  in  de- 
mand, other  things  are  not  equal. 

Differences  in  the  relation  of  effort  applied  to 
the  demand  for  the  results  of  its  application  may 
be  illustrated  by  two  examples..  In  the  production 
of  fabrics  made  of  cotton  is  necessary  the  effort 
of  a  large  number  of  persons  in  planting,  picking, 
packing,  ginning,  transporting,  compressing,  card- 
ing, spinning,  weaving,  and  dyeing.  It  is  differ- 
ent with  the  various  products  of  mineral  oil. 
They  result  from  the  application  of  the  efforts  of 
a  comparatively  limited  number.  There  is  not  the 
cultivation  of  the  soil,  the  planting  of  seed,  or 
laborious  gathering  by  hand.  In  the  drilling  of 
a  well  and  the  construction  of  pipe  lines  are  requi- 
site the  efforts  of  many,  but  the  gushing  forth  of 
the  oil  and  its  flow  through  the  pipes  to  the  tanks 
and  to  the  refineries  is  due  in  greatest  measure 
to  cosmic  force  that  is  supplemented  by  human 
effort  in  small  proportion.  But  oil  is  in  wide 
demand.  Mineral  oil  as  a  lubricant  displaced  ani- 
mal oils,  enabling  the  operation  of  machines  in- 
calculably greater  in  number.  It  also  displaced 
animal  and  vegetable  oils  as  an  illuminant  in 
countless  households  throughout  the  world.  In 
many  places  it  has  displaced  coal  as  fuel  both  in 
furnace  of  stationary  and  locomotive  engine,  and 
the  supply  has  with  diflSculty  kept  pace  with  the 
demand  for  its  use  in  generating  power  for  auto- 


158  THE  FLOW  OF  VALUE 

mobiles.  Mineral  oil,  moreover,  is  of  widespread 
medicinal  use.  Therefore  the  application  of  a 
given  measure  of  effort  in  producing  certain  prod- 
ucts of  mineral  oil  brings  in  return  greater  com- 
mand over  utilities  in  general  than  the  applica- 
tion of  an  equivalent  measure  of  effort  in  pro- 
ducing certain  fabrics  of  cotton. 

When  each  seller  strives  to  obtain  the  greatest 
number  of  dollars  he  can  for  utilities  of  a  given 
kind,  he  is  striving  that  the  smallest  measure  of 
these  utilities  have  the  ratio  of  the  dollar.  When 
each  purchaser  strives  to  pay  the  smallest  number 
of  dollars  he  can  for  utilities  of  a  given  kind,  he 
is  striving  that  the  greatest  measure  of  these  util- 
ities have  the  ratio  of  the  dollar.  Thus  when  a 
man  strives  to  sell  the  smallest  measure  of  utili- 
ties in  relation  to  the  dollar,  he  is  striving  to  ob- 
tain other  utilities  in  the  greatest  measure  in  re- 
turn for  the  utilities  he  sells.  Likewise,  when 
any  purchaser  strives  to  pay  the  fewest  dollars  he 
can,  he  is  striving  in  return  for  utilities  previously 
sold  to  obtain  the  greatest  measure  of  the  utili- 
ties he  wants. 

The  ratio  of  utilities  of  a  given  kind  to  the  dollar 
is  determined  at  any  instant  by  the  sale  of  those 
utilities  at  th^t  instant.  By  bargaining  between 
buyers  and  sellers,  however,  is  established  the 
ratios  of  respective  utilities  to  the  dollar  that  may 
apply  over  a  smaller  or  a  greater  area  for  a 
shorter  or  a  longer  time.    This  ratio  for  utilities 


THE  RELATIVITY  OF  PRICES  159 

of  a  given  kind  can  never  be  lower  than  that  of 
the  greatest  measure  with  which  a  seller  will  part 
for  a  dollar,  and  can  never  be  higher  than  that 
of  the  smallest  measure  for  which  a  purchaser  will 
pay  a  dollar.  Bargaining  between  many  buyers 
and  many  sellers  tends  to  narrow  the  range  of 
prices.  The  wider  the  area  over  which  the  bar- 
gaining prevails,  the  more  widely  information  is 
diffused  as  to  prices.  Therefore,  the  tendency 
will  be  for  those  engaged  in  the  sale  of  utilities 
and  in  the  purchase  of  utilities  to  know  about 
what  will  be  the  ratio  to  the  dollar  of  the  utilities 
with  which  each  is  concerned.  That  is,  when  a 
man  sells  utilities  for  a  given  number  of  dollars, 
he  knows  about  what  measures  of  other  utilities 
he  can  purchase  with  the  dollars  received;  and, 
likewise,  when  he  buys  utilities  for  a  given  number 
of  dollars,  he  knows  about  what  measures  of  other 
utilities  he  could  have  purchased.  Thus  it  is  that 
when  he  sells  for  a  given  number  of  dollars,  the 
seller  consciously  or  subconsciously  has  in  mind 
the  utilities  he  can  purchase  with  that  number  of 
dollars ;  when  he  buys  for  a  given  number  of  dol- 
lars, the  buyer  consciously  or  subconsciously  exer- 
cises preference  for  the  utilities  he  buys  over  other 
utilities  he  might  have  bought. 

With  the  dollars  in  his  possession  available  for 
the  purchase  of  final  utilities  a  man  buys  them  in 
the  order  of  their  relative  importance  in  meeting 


160  THE  FLOW  OF  VALUE 

his  wants.  Let  us  suppose  that  the  annual  in- 
come of  a  family  is  one  thousand  dollars  obtained 
as  wages  by  its  head,  who  has  steady  employment. 
Let  us  suppose  that  the  family  consists  of  man, 
wife,  and  children,  and  that  its  annual  expenditure 
is  about  as  follows :  rent  $180,  furniture  $50,  food 
$300,  clothing  $200,  newspapers,  magazines,  etc., 
$15,  doctor  $25,  recreation  $30,  incidentals  $100, 
insurance  and  saving  $100.  Let  us  suppose  that 
these  expenditures  in  these  proportions  are  neither 
more  nor  less  than  sufficient  to  maintain  the  mem- 
bers of  the  family  in  the  physical  and  mental  effi- 
ciency of  which  they  are  capable. 

The  food  of  such  a  family  would  consist  in  the 
main  in  certain  proportions  of  beef,  mutton, 
pork,  poultry,  eggs,  butter,  lard,  milk,  coffee,  tea, 
flour,  cornmeal,  potatoes,  cabbages,  onions,  and 
other  vegetables,  apples,  oranges,  bananas,  and 
other  fruits.  As  the  supply  of  one  or  another  of 
these  articles  becomes  less  or  greater  in  relation 
to  demand,  its  price  rises  or  falls.  For  example, 
if  the  supply  of  beef  at  a  certain  time  should  so 
decrease  as  to  cause  an  advance  in  price  of  sev- 
eral cents  a  pound,  the  family  would  be  obliged  to 
consume  less  of  beef,  or  less  of  other  foods,  or 
else  increase  its  expenditure  for  food.  On  the 
supposition  that  it  decreased  its  expenditure  for 
beef  so  that  its  total  expenditure  for  food  did 
not  exceed  $300  per  annum,  it  would  be  obliged 
to  buy  more  of  other  foods  or  else  to  reduce  its 


-      THE  RELATIVITY  OF  PRICES  161 

diet.  Under  our  supposition  it  could  not  reduce 
its  diet  without  impairing  the  eflSciency  of  its 
members.  It  could  not  increase  its  expenditure 
for  food  without  decreasing  its  expenditure  for 
other  utilities,  and  this  also  would  impair  the 
efficiency  of  its  members. 

If  it  were  to  decrease  its  consumption  of  beef 
and  buy  more  of  other  foods,  the  demand  for  beef 
would  be  decreased  and  the  demand  for  other 
foods  increased.  If  the  budget  of  this  family  be 
typical  of  that  of  thousands  of  families,  the  de- 
crease in  the  demand  for  beef  would  be  consid- 
erable, and  the  increase  in  the  demand  for  other 
foods  would  be  considerable.  If  the  supply  of 
beef  were  no  greater  than  would  be  purchased  by 
families  with  larger  incomes,  the  growers,  pack- 
ers, wholesalers,  and  retailers  of  beef  might  obtain 
profit  at  the  higher  prices.  If  the  profit  were 
considerable,  more  of  beef  might  be  grown,  packed, 
and  offered  for  sale.  Prices  might  again  fall  so 
low  as  to  place  it  within  the  means  of  families 
with  incomes  of  one  thousand  dollars  a  year. 
This  would  not  happen  if  the  owners  of  the  land 
on  which  beef  were  grown  believed  they  could  ob- 
tain greater  profit  in  other  production.  More  or 
less  of  land  might  be  deflected  from  the  raising 
of  beef  to  the  raising  of  wheat  or  cotton,  sheep  or 
hogs,  and  the  consumption  of  beef  might  continue 
to  be  restricted  to  those  of  ample  means.  Its  pro- 
duction would  diminish,  not  because  of  lack  of  de- 


leSt  THE  FLOW  OF  VALUE 

sire  for  it  but  because  the  demand  for  other  food 
was  more  effective.  The  diminution  would  be  in 
the  supply  of  a  highly  beneficial  utility. 

Now  let  us  suppose  that,  of  the  expenditure  of 
thirty  dollars  a  year  for  recreation,  this  family 
had  been  wont  to  spend  five  dollars  for  a  set  of 
croquet  such  as  bedecked  lawn  and  yard  of  a 
generation  ago,  or  for  roller  skates,  the  use  of 
which  subsequently  became  prevalent.  A  similar 
demand  from  the  thousands  of  families  would 
create  a  demand  in  the  aggregate  for  sets  of  cro- 
quet and  for  roller  skates  that  would  give  em- 
ployment, perhaps,  to  thousands  of  men  in  scores 
of  factories;  that  would  direct  to  the  produc- 
tion of  roller  skates  and  sets  of  croquet  por- 
tions of  the  force  applied  in  felling  trees  and 
transforming  lumber,  in  extracting  ores  and  trans- 
forming metal.  All  of  those  engaged  in  the  pro- 
duction of  sets  of  croquet  and  roller  skates  would 
have  to  be  provided  with  food,  clothing,  and  shel- 
ter. That  is,  a  proportion  of  the  effort  applied  in 
the  production  of  these  essential  utilities  would 
be  for  the  benefit  of  those  who  produced  sets  of 
croquet  and  roller  skates.  With  the  waning  of 
the  vogue  for  these  implements  of  recreation  effort 
devoted  to  their  production  necessarily  was  di- 
verted to  other  production  or  else  there  was  a 
diminution  of  productive  effort.  If  there  were 
specialized  machines  that  could  not  be  utilized  ex- 
cept in  the  manufacture  of  sets  of  croquet  and 


THE  RELATIVITY  OF  PRICES  163 

roller  skates,  those  machines  became  useless. 
These  are  examples  of  diminution  in  the  supply 
of  a  nonessential  utility  because  of  a  diminution 
in  the  demand. 

Diminution  in  demand  may  follow  the  displace- 
ment of  a  final  utility  by  one  more  effective.  For 
example,  that  development  of  the  phonograph 
which  has  led  to  the  manifold  reproduction  of 
musical  renditions  caused  the  cessation  of  the 
manufacture  of  the  old-time  music  box.  Diminu- 
tion in  demand  for  a  final  utility  may  follow  a 
change  in  fashion,  even  though  the  utility  dis- 
placed be  not  less  serviceable  than  that  which 
supersedes  it.  This  is  conspicuously  the  case  with 
women's  dress.  It  was  exemplified  when  in  great 
measure  rugs  displaced  carpets  for  floor  cover- 
ing. Machinery  devised  for  the  making  of  carpets 
passed  out  of  utilization,  and  there  was  falling 
demand  for  the  efforts  of  operatives  trained  and 
skilled  in  carpet  manufacture. 

There  may  be  variations  not  only  in  the  supply 
of  and  demand  for  particular  utilities  but  for 
groups  of  utilities.  During  the  first  decade  of 
the  twentieth  century,  manufacturing  establish- 
ments engaged  in  the  transformation  of  the  woods 
and  the  metals  into  various  utilities  absorbed  so 
much  of  the  effort  of  the  population  that  a  con- 
siderably smaller  proportion  remained  to  be  ap- 
plied in  processes  of  producing  food.  The  di- 
minishing supply  of  food  in  relation  to  the  demand 


164  THE  FLOW  OF  VALUE 

led  to  an  advance  in  the  prices.  It  might  be  that 
the  family  with  an  income  of  one  thousand  dollars 
a  year  could  not  obtain  the  food  for  which  it  had 
paid  three  hundred  dollars  except  at  an  expendi- 
ture of  five  hundred  dollars.  Under  our  suppo- 
sition, if  it  were  to  reduce  the  consumption  of 
food,  the  efficiency  of  its  members  would  be  im- 
paired. The  advance  of  two  hundred  dollars 
would  more  than  absorb  its  savings,  its  inci- 
dental expenditures,  those  for  recreation,  for  med- 
ical attendance,  and  for  newspapers  and  maga- 
zines. If  the  head  of  the  family  were  employed 
in  a  factory  himself,  it  might  be  that  the  increase 
in  its  profit  would  enable  his  wages  to  be  advanced 
in  the  same  proportion  as  his  cost  of  living.  But 
the  supply  of  food  would  not  thereby  be  increased. 
If  the  budget  of  that  family  were  typical  of  thou- 
sands of  families,  and  the  incomes  of  these  thou- 
sands of  families  as  expressed  in  dollars  were 
advanced  proportionately,  the  supply  of  food 
would  not  be  thereby  increased.  The  thousands 
of  families  would  be  bidding  for  the  available 
supply,  and  the  prices  as  expressed  in  dollars 
would  so  advance  that  they  might  not  be  any 
better  off  than  before.  If  the  incomes,  as  ex- 
pressed in  dollars,  of  part  of  the  families  were 
advanced,  these  families  might  be  enabled  to  make 
their  customary  purchases  of  food,  but  those  with 
incomes  remaining  at  one  thousand  dollars  could 
not. 


THE  RELATIVITY  OF  PRICES  165 

It  is  well  here  to  recall  that  the  fundamental 
significance  of  price  is  not  the  number  of  dollars 
obtained  for  a  measure  of  utilities,  but  the  meas- 
ure of  other  utilities  that  are  obtained.    In  the 
light  of  this  fundamental  significance  the  dollar 
is  a  unit  that  facilitates  buying  and  selling  in  that 
a  measure  of  any  utility  bears  a  ratio  to  this  unit. 
When  a  man  sells  utilities  of  a  given  kind  at  a 
given  time,  the  measure  that  has  the  ratio  of 
the  dollar  is  determined  by  the  interrelations  be- 
tween supply  and  demand  at  that  time.    If  he  re- 
tains the  dollars  received  for  expenditure  at  a 
future  time,  he  does  not  obtain  utilities  in  return 
for  the  utilities  he  has  sold  until  a  future  time. 
Then  there  may  have  been  such  a  change  in  the 
interrelations  between  supply  and  demand  that  a 
greater  or  less  measure  of  utilities  of  a  given  kind 
can  be  obtained  for  that  number  of  dollars.    If 
he  then  is  obliged  to  pay  a  greater  number  of  dol- 
lars for  a  given  measure  of  utilities,  he  obtains  in 
different  measure  of  the  results  of  force  applied 
to  matter.     If  a  wage-earner  were  to  demand  and 
receive  a  greater  number  of  dollars  because  of 
an  advance  in  the  price  of  these  utilities,  the 
employer,  other  things  equal,  would  endeavor  to 
obtain  more  of  dollars  for  the  utilities  for  the  pro- 
duction of  which  he  was  responsible.     Their  pur- 
chasers, in  order  to  offset  the  advance,  would 
endeavor  to  obtain  more  of  dollars  for  the  utili- 
ties they  produced  and  sold.    If  this  process  were 


166  THE  FLOW  OF  VALUE 

continued,  more  of  dollars  would  finally  have  to 
be  demanded  for  the  utilities,  the  advance  in  the 
price  of  which  started  the  series  of  advances. 
When  the  circuit  was  thus  completed,  the  actual 
prices  of  utilities,  that  is  the  prices  of  utilities  as 
measured  by  utilities,  would  be  the  same  as  be- 
fore the  circuit  was  begun.  Thus,  while  the  same 
measure  of  utilities  of  one  kind  would  bear  the 
same  ratio  to  the  same  measures  of  utilities  of 
other  kinds,  they  would  bear  a  different  ratio  to 
the  dollar.  There  would  have  been  no  change  in 
actual  prices ;  the  change  would  be  in  the  relation 
to  the  unit  of  exchange.  That  is,  this  would  be  the 
case  provided  the  relation  of  utilities  produced, 
to  the  wants  for  those  utilities,  remained  the  same. 
Let  this  point  be  made  clear  by  extending  the 
analysis  to  the  ultimate  factors  in  production. 
As  force  is  applied,  it  follows  that  there  must  be 
units  of  force  applied.  As  wants  are  met,  it  fol- 
lows that  there  must  be  units  of  wants  met.  In 
a  state  of  self-suflBciency,  a  man  applied  force- 
units  when  he  used  his  hands  in  procuring  that 
which  he  wanted,  and  want-units  were  met  by  that 
which  he  procured.  The  force-units  he  applied 
resulted  in  the  satisfaction  of  his  want-units  that 
were  met.  In  an  easy  environment  less  effort 
might  be  required  in  meeting  wants  than  in  a 
difficult  environment.  For  example,  a  native  of 
the  tropics,  who  picked  bread-fruit  from  a  tree  and 
wore  a  breech-clout,  exerted  less  effort  to  meet 


THE  RELATIVITY  OF  PRICES  167 

his  wants  than  the  Eskimo  obliged  to  kill  seals 
to  obtain  their  furs  for  clothing  and  their  fat  for 
food.  If  an  Eskimo  had  to  work  harder  at  one 
time  than  another  to  obtain  the  furs  and  the  food 
that  served  his  wants  for  an  equal  period,  he 
would  be  applying  more  force-units  to  meet  the 
same  number  of  want-units.  If,  for  example,  he 
thus  had  to  work  twice  as  hard  at  one  time  as 
at  another  time,  it  would  be  perhaps  that  ten 
force-units  supplied  one  want-unit  at  one  time, 
and  five  force-units  supplied  one  want-unit  at  an- 
other time.  Let  it  be  supposed  that  the  fur  and 
fat  constituting  one  want-unit  sustained  the  vital- 
ity that  enabled  the  Eskimo  to  put  forth  five  force- 
units. 

If  we  allow  ourselves  to  indulge  in  the  fantasy 
that  the  Eskimo  kept  accounts  with  himself,  and 
tried  to  adjust  the  relation  of  his  force-units  to 
his  want-units,  he  might  designate  the  five  force- 
units  applied  at  the  preceding  time  as  five  dollars, 
or  one  dollar,  or  fifty  cents,  or  ten  cents.  If  he 
designated  them  as  one  dollar,  and  thus  credited 
his  force  account  with  one  dollar  when  it  had 
provided  five  force-units,  he  would  have  to  debit 
his  want  account  with  one  dollar  because  of  the 
one  want-unit  met.  The  relation  of  force-units  to 
want-units  would  be  as  five  to  one.  The  unit  of 
exchange  that  would  buy  five  force-units  would 
buy  one  want-unit,  or  vice  versa.  If,  when  he 
came  to  replace  that  want-unit,  he  found  he  was 


168  THE  FLOW  OF  VALUE 

obliged  to  put  forth  ten  force-units,  he  might,  at 
the  price  previously  established  for  force-units, 
credit  his  force  account  with  two  dollars.  If  he 
also  at  the  price  previously  established  for  want- 
units  debited  his  want  account  with  one  dollar, 
his  bookkeeping  would  show  a  balance  of  one  dol- 
lar to  the  credit  of  his  force  account.  But  these 
ten  force-units  had  been  expended,  and  his  want 
account  had  received  in  return  one  want-unit  which 
would  enable  him  to  exert  only  five  force-units. 
If,  on  the  contrary,  he  had  on  the  basis  of  what 
his  wants  had  received  from  the  ten  force-units 
credited  his  force  account  with  one  dollar  and 
debited  his  want  account  with  one  dollar,  the  want- 
unit  would  still  enable  him  to  put  forth  only  five 
force-units,  which,  if  the  conditions  continued, 
would  enable  the  production  of  only  one-half  a 
want-unit.  That  is,  when  his  want  account  was 
credited  with  force-units  produced,  it  could  at  the 
preceding  price  be  credited  with  only  one-half 
dollar.  Thus,  if  the  Eskimo  tried  to  reimburse 
himself  for  his  increased  cost  of  living  by  doubling 
his  wages  as  expressed  in  dollars  for  effort  put 
forth,  he  would  receive  no  more  for  his  two  dol- 
lars than  he  had  previously  received  for  one. 
If  he  tried  to  reduce  his  expenses  by  insisting  that 
his  want  account  would  pay  no  more  for  the  want- 
unit  than  the  previously  established  price  of  one 
dollar,  his  credit  of  one  dollar  to  the  want-unit 


THE  RELATIVITY  OF  PRICES  169 

account  would  purchase  but  half  of  the  force- 
units  requisite  to  replace  the  want-unit. 

If  we  indulge  in  the  further  fantasy  that  the 
situation  developed  in  that  Eskimo  a  logical  mind, 
an  ability  to  face  the  facts,  he  might  discover  that 
the  only  way  he  could  maintain  equilibrium  be- 
tween his  force  account  and  his  want  account 
would  be  to  increase  the  force-units  applied  by 
means  of  one  want-unit,  or  to  decrease  the  want- 
units  received  in  relation  to  the  force-units  ap- 
plied in  their  production. 

The  logic  of  the  situation  developed  by  this  fan- 
tastic supposition  finds  close  analogy  in  our  de- 
veloped stage  of  industry  and  commerce.  Instead 
of  effort  by  one  man  being  put  forth  to  meet  his 
individual  wants,  the  efforts  of  all  persons  en- 
gaged in  production  are  put  forth  to  meet  the 
wants  of  all  persons  supported  by  the  utilities  pro- 
duced. The  purchasers  of  the  final  utilities  pay 
for  all  of  the  effort  that  has  been  applied  in  their 
production.  If  final  purchasers  are  obliged  to 
pay  more  dollars  for  a  given  final  utility,  their 
purchase  of  that  utility  will  diminish,  or  their 
purchases  of  other  utilities  will  diminish.  If  final 
purchasers  are  obliged  to  pay  more  dollars  for  all 
utilities,  their  purchases  will  diminish  unless  the 
dollars  to  their  credit  increase.  If  the  dollars  to 
their  credit  increase  but  the  volume  of  production 
does  not  proportionately  rise,  they  can  obtain  no 


170  THE  FLOW  OF  VALUE 

more  for  the  greater  number  of  dollars  than  they 
formerly  obtained  with  the  smaller  number  of 
dollars.  If  higher  wages  as  expressed  in  dollars 
be  paid  to  part  of  the  wage-earners  and  not  to 
others,  those  wage-earners  may  be  able  to  buy 
the  same  proportions  of  utilities  as  before,  but 
other  wage-earners  will  not  be  able  to  buy  as  much 
as  they  bought  before.  The  only  way  in  which 
all  persons  can  receive  utilities  in  greater  propor- 
tions in  return  for  the  efforts  put  forth  by  them, 
is  by  the  production  of  all  utilities  in  greater  pro- 
portion in  relation  to  the  number  of  persons  en- 
gaged in  their  production.  Then  the  tendency  will 
be  for  the  dollar  of  credit  at  a.  given  time  to  buy 
more  of  utilities  than  the  dollar  of  credit  at  a 
preceding  time.  Thus  with  a  fewer  number  of 
dollars  can  be  obtained  utilities  that  enable  the 
application  of  force  in  the  production  of  the  same 
volume  of  utilities  as  before,  or  in  the  production 
of  a  greater  volume  of  utilities  than  before. 

At  any  given  time  actual  prices  are  determined 
by  interrelations  between  force  applied  and  wants 
met.  They  are  likewise  at  any  future  time  de- 
termined by  these  interrelations  which  may  vary 
as  follows: 

The  volume  in  which  a  given  utility  is  produced  may  in- 
crease in  the  same  ratio  as  the  population. 
This  increase  may  be  effected  by  the  efforts  of  the  same 
proportionate  number  of  persons. 


THE  RELATIVITY  OF  PRICES  171 

This  increase  may  be  effected  by  the  efforts  of  a 
smaller  proportionate  number  of  persons. 

This  increase  may  be  effected  by  the  efforts  of  a  larger 
proportionate  number  of  persons. 

The  volume  in  which  a  given  utility  is  produced  may  in- 
crease in  a  greater  ratio  than  the  population. 

This  increase  may  be  effected  by  the  efforts  of  the 
same  proportionate  number  of  persons. 

This  increase  may  be  effected  by  the  efforts  of  a  smaller 
proportionate  number  of  persons. 

This  increase  may  be  effected  by  the  efforts  of  a  larger 
proportionate  number  of  persons. 

The  volume  in  which  a  given  utility  is  produced  may 

decrease,  or  it  may  increase  in  a  less  ratio  than  the 

population. 
This  volume  may  be  produced  by  the  efforts  of  the 

same  proportionate  number  of  persons. 
This  volume  may  be  produced  by  the  efforts  of  a 

smaller  proportionate  number  of  persons. 
This  volume  may  be  produced  by  the  efforts  of  a 

larger  proportionate  number  of  persons. 

The  demand  for  a  given  utility  may  increase  in  the  same 
ratio  as  the  population. 

The  demand  for  a  given  utility  may  increase  in  a 
greater  ratio  than  the  population. 

The  demand  for  a  given  utility  may  decrease  in  relation 
to  the  population. 

If  the  increase  in  the  volume  of  a  given  utility 
be  in  the  same  ratio  as  that  of  the  population  and 
if  the  production  be  effected  by  the  same  propor- 


Vm  THE  FLOW  OF  VALUE 

tionate  number  of  persons  applied  in  the  same 
relative  proportions,  and  if  the  demand  increase  in 
the  same  ratio  as  that  of  the  population,  the  price 
will  not  change.  This  would  be  because  all  of  the 
factors  that  determine  price  would  remain  the 
same. 

If  the  increase  in  the  production  of  a  given  util- 
ity and  in  the  demand  be  in  the  same  ratio  as  that 
of  the  population,  and  the  production  be  effected 
by  the  same  proportionate  number  of  persons, 
but  there  be  a  variation  in  the  effectiveness  of 
their  respective  efforts,  the  price  would  be  the 
same,  the  aggregate  of  credits  received  by  those 
responsible  for  production  would  be  the  same,  but 
wage  and  profit  would  vary  with  the  respective 
degrees  of  effectiveness  of  the  producing  organiza- 
tions. 

If  the  volume  of  production  of  a  given  utility 
increase  in  the  same  ratio  as  the  population,  and 
the  demand  increase  in  greater  ratio,  prices  would 
rise  and  the  aggregate  of  credits  to  those  respon- 
sible for  production  would  increase.  This  would 
mean  that  purchasers  would  have  to  decrease  their 
purchases  of  other  utilities  unless  the  production 
of  those  utilities  had  so  increased  that  because  of 
the  ensuing  fall  in  prices  purchasers  could  still 
pay  higher  prices  for  the  given  utility. 

If  the  volume  of  production  of  a  given  utility 
decrease  in  ratio  to  the  population  and  the  de- 
mand for  it  correspondingly  decrease,  prices  will 


THE  RELATIVITY  OF  PRICES  173 

remain  the  same,  but  the  total  of  credits  accruing 
to  those  responsible  for  its  production  will  rela- 
tively diminish. 

If  the  volume  of  production  relatively  decrease 
and  the  demand  relatively  increase,  prices  will 
advance.  They  may  possibly  so  advance  that 
those  responsible  for  production  will  receive 
greater  credits  than  if  the  volume  were  greater 
in  relation  to  the  demand.  If  they  do  not  have  to 
pay  higher  wages,  or  more  for  substance,  their 
profit  will  be  greater. 

The  demand  for  a  given  utility  depends  in  part 
upon  the  relation  which  the  proportionate  in- 
crease or  decrease  in  its  production  bears  to  the 
proportionate  increase  or  decrease  in  the  produc- 
tion of  other  utilities.  For  example,  utility  A 
may  be  wanted  so  much  more  than  utility  B  that, 
even  though  the  production  of  the  former  had  rela- 
tively decreased  and  that  of  the  latter  relatively 
increased,  many  persons  might  be  willing  to  pay 
the  higher  prices  requisite  to  obtain  utility  A  and 
thus  could  not  afford  to  buy  utility  B  even  at 
lower  prices. 

The  preceding  discussion  has  shown  that,  inas- 
much as  all  utilities  are  the  result  of  human  effort, 
price  consists  in  the  respective  measure  of  utilities 
of  respective  kinds  that  can  be  obtained  in  ex- 
change for  a  given  measure  of  human  effort  of  a 
given  kind,  or  for  a  measure  of  the  results  of 


174       ,         THE  FLOW  OP  VALUE 

respective  proportions  of  human  effort.  As  price 
is  expressed  in  terms  of  the  unit  of  exchange,  the 
dollar  measures  utilities  that  are  bought  in  terms 
of  utilities  that  are  sold.  As  the  relation  between 
utilities  bought  and  utilities  sold  is  that  of  supply 
and  demand,  the  dollar  is  the  nexus  of  supply  and 
demand  for  effort  applied  in  respective  kinds  of 
production.  As  there  is  thus  a  relativity  between 
the  proportions  of  effort  applied  in  the  production 
of  utilities,  there  is  also  a  relativity  between 
■prices.  As,  pursuant  to  supply  and  demand, 
greater  or  less  proportions  of  the  aggregate  of 
productive  effort  are  respectively  applied  in  the 
production  of  the  respective  measures  of  the  util- 
ities of  the  different  kinds  that  have  the  ratio  of 
the  dollar,  the  changing  relations  between  effort 
applied  and  wants  met  are  indicated  by  changes 
in  price  expressed  in  terms  of  the  dollar. 


xin 

THE  RELATIVITY   OF   PROFIT 

The  germ  of  profit  is  in  the  specialization  of 
effort.  The  first  gain  was  in  that  exchange  where- 
under  each  party  obtained  that  which  was  pro- 
duced with  less  effort  than  he  would  have  been 
obliged  to  exert  in  its  production.  That  produced 
by  each  gave  command  over  the  results  of  effort 
of  the  other;  there  was  mutual  profit  because  of 
the  mutual  saving  of  effort.  Continuity  in  attain- 
ing profit  is  continuity  in  producing  that  which 
through  exchange  gives  command  over  a  greater 
proportion  of  effort  than  that  applied  in  its  pro- 
duction. Thus  profit  develops  into  the  production 
and  selling  of  that  which  gives  command  over  the 
results  of  the  efforts  of  others,  and  therefore  over 
the  manner  in  which  effort  shall  be  put  forth  by 
others.  In  further  development,  profit  is  derived 
from  selling  utilities  for  prices  that  bring  credits 
sufficient  to  give  command  over  effort  that  results 
in  the  production  of  utilities  that  bring  greater 
totals  of  credits,  and  thus,  other  things  equal,  com- 
mand over  the  efforts  of  a  greater  number  of  per- 
sons. In  a  still  later  development  continuity  of 
profit  implies  the  selling  of  utilities,  in  the  produo- 

175 


176  THE  FLOW  OF  VALUE 

tion  of  which  human  effort  has  been  applied  in 
connection  with  external  force,  for  prices  that 
bring  credits  sufficient  to  give  command  over 
effort  that,  applied  in  connection  with  external 
force,  results  in  the  production  of  utilities  that 
bring  greater  totals  of  credits.  This  may  or  may 
not  involve  enlisting  the  effort  of  a  greater  num- 
ber of  persons,  but  profit  tends  to  give  command 
over  the  efforts  of  a  greater  number  of  persons 
than  that  of  those  from  whose  efforts  it  was  de- 
rived. 

Profit  is  the  surplus  obtained  from  the  sale  of 
utilities  over  that  which  has  been  expended  in 
their  production.  Therefore,  it  is  the  surplus  re- 
ceived from  the  sale  of  utilities  over  what  is  neces- 
sary to  replace  that  consumed  in  their  produc- 
tion. Therefore,  profit  is  that  received  from  the 
sale  of  utilities  which  may  be  utilized  in  the  pro- 
duction of  utilities  of  the  same  kind  in  larger  vol- 
ume, or  in  the  production  of  utilities  of  another 
kind,  or  in  the  purchase  of  utilities  of  whatever 
kind. 

As  profit  is  that  portion  of  the  credits  derived 
from  the  sale  of  utilities  which  remains  after  pay- 
ment of  the  debits  incurred  in  their  production, 
all  of  profit  is  derived  from  the  production  and 
sale  of  utilities,  and,  therefore,  from  the  sale  of 
the  results  of  effort  that  has  been  applied  in  the 
past.  As  profit  more  than  suffices  to  replace  that 
consumed  we  again  perceive  that  it  gives  com- 


THE  RELATIVITY  OF  PROFIT  177 

mand,  other  things  equal,  over  a  measure  of  effort 
to  be  applied  in  future  production  greater  than 
the  measure  applied  in  the  past  from  which  it  was 
derived. 

At  any  given  time  an  aggregate  of  effort  is 
applied  in  the  production  of  the  aggregate  of  util- 
ities that  meet  an  aggregate  of  wants.  As  there 
is  the  relativity  of  effort  applied  in  production, 
and  relativity  between  the  wants  met,  as  inter- 
relations between  effort  applied  and  wants  met 
determine  prices  between  which  there  is  relativity, 
it  follows  that  there  must  be  a  relativity  of  profit. 
That  is,  the  profit  obtained  from  the  production 
and  sale  of  utilities  of  a  given  kind  bears  a  rela- 
tion to  the  profit  obtained  from  the  production 
and  sale  of  utilities  of  other  kinds.  Therefore, 
there  is  a  relation  between  the  profit  derived  from 
the  production  and  sale  of  utilities  of  all  kinds. 

Those  responsible  for  production  will,  other 
things  equal,  pay  wages  determined  by  the  sup- 
ply of  and  the  demand  for  workers  of  the  requi- 
site grades  of  efficiency.  They^will  pay  for  sub- 
stance, for  instruments  of  production,  and  all 
requisite  to  their  operation  the  prices  determined 
by  interrelations  between  supply  and  demand. 
These  interrelations  may  determine  prices  for  ef- 
fort or  for  substance  that  are  higher  or  lower  at 
one  place  than  another,  higher  or  lower  at  one 
time  than  another.  A  producer  by  availing  of 
these  variations  may  purchase  to  greater  or  less 


178  THE  FLOW  OF  VALUE 

advantage  than  another,  and  thus  his  profit  may 
be  larger  or  smaller.  But  inasmuch  as  bargaining 
and  competition  tend  toward  equal  prices  for  equal 
measures  of  the  same  utilities,  profit,  in  the  long 
run,  depends  upon  production  at  decreased  cost 
in  relation  to  the  volume  produced.  This,  other 
things  equal,  means  that  the  efforts  of  fewer  per- 
sons are  enlisted  in  relation  to  the  volume  pro- 
duced. 

The  total  of  profit  obtained  from  the  produc- 
tion of  utilities  of  a  given  kind  would  be  that  of 
all  producers  of  utilities  of  that  kind.  Obviously, 
the  total  of  that  production  could  not  be  increased 
unless  profit  could  be  obtained  more  than  suffi- 
cient to  replace  all  the  utilities  that  were  con- 
sumed. But,  when  the  application  of  the  effort 
for  which  a  certain  producer  is  responsible  re- 
sults in  the  production  of  utilities  which  bring 
credits  exceeding  the  debits  incurred,  that  pro- 
ducer may  continue  to  obtain  profit  from  that  vol- 
ume of  production.  He  may  be  content  to  reap 
this  measure  of  profit  from  this  volume,  leaving 
it  to  others  to  take  the  risks  involved  in  increas- 
ing the  volume. 

Profit  is  credits,  and  credits  command  over  util- 
ities. When  one  producer  obtains  greater  profit 
than  another,  he  has  secured  greater  command 
over  utilities  than  another.  As  profit  is  expressed 
in  dollars,  a  greater  surplus  of  dollars  acquired 
by    one    business    organization    as    profit    gives 


THE  RELATIVITY  OF  PROFIT  179 

greater  command  over  utilities  than  the  smaller 
surplus  acquired  by  another  organization. 

Profit  bears  a  relation  to  the  expenditure  which 
has  been  made  in  order  to  obtain  it.  That  ex- 
penditure may  be  for  human  effort  alone,  as  when 
a  contract  carpenter  employs  other  carpenters. 
It  may  be  for  substance  alone,  as  when  a  trader 
buys  wheat  for  future  sale.  It  may  be  for  sources 
of  substance,  as  when  a  dealer  buys  a  farm  for 
future  sale.  It  may  be  for  instruments  of  pro- 
duction bought  by  an  intermediary  for  future  sale. 
Or  that  expenditure  may  have  been,  as  in  the 
case  of  a  large  business  organization,  for  sources 
of  substance,  substance,  instruments  of  produc- 
tion, and  effort,  all  of  which  are  continuously  util- 
ized in  the  production  of  utilities  for  sale.  Thus 
profit  may  be  secured  upon  the  investment  in  a 
utility  that  is  sold  in  its  entirety,  or  it  may  accrue 
upon  investment  in  various  utilities  continuously 
utilized  in  the  production  of  utilities  for  sale.  In 
either  event  profit  is  return  upon  investment.  It, 
therefore,  is  calculated  in  relation  to  the  total  of 
the  investment,  and  naturally  is  expressed  in  the 
percentage  that  the  return  bears  to  the  invest- 
ment. 

Therefore,  it  is  not  suflScient  to  compare  the 
total  of  profit  obtained  by  one  person  or  by  one 
business  organization  with  the  total  obtained  by 
another.  The  significant  comparison  is  of  the  re- 
lation of  the  profit  to  the  investment.    Upon  a 


180  THE  FLOW  OF  VALUE 

given  investment,  one  business  organization  can 
not  obtain  greater  profit  than  another  unless  it 
obtains  a  greater  surplus  of  credits  over  debits. 
This  it  may  do  by  producing  at  less  expense  per 
unit  the  same  volume  of  utilities  for  which  the 
same  prices  are  received.  On  the  supposition 
that  equal  prices  have  been  paid  for  all  that 
has  been  used  in  the  production,  profit  will  be  ob- 
tained in  greater  measure  by  one  organization 
than  another  if  it  be  more  eflScient  in  the  applica- 
tion of  force. 

As  it  is  the  difference  between  the  price  received 
per  unit  of  utility  produced  and  the  cost  of  pro- 
duction per  unit  that  constitutes  the  profit  per 
unit,  it  follows  that  the  total  of  profit  is  the  total 
of  the  profit  from  the  total  units  of  production. 
Therefore,  profit  is  not  to  be  measured  solely  a's 
return  upon  the  investment,  but  also  is  to  be  meas- 
ured in  its  relation  to  the  volume  of  the  produc- 
tion. If  a  plant  be  utilized  to  its  full  capacity,  the 
profit  per  unit  of  production,  other  things  equal, 
may  be  greater  than  if  it  is  not  so  utilized.  At 
times  of  extraordinary  demand,  if  it  be  operated 
continuously  day  and  night,  its  profit  may  be  ex- 
traordinary. This  will  mean  that  it  enlists  more 
of  effort  and  buys  more  of  substance.  As  a  pro- 
ducer does  not  enlist  more  of  effort  or  buy  more 
of  substance  unless  he  expects  to  obtain  increased 
profit  therefrom,  it  follows  that  he  obtains  profit 


THE  RELATIVITY  OF  PROFIT  181 

not  only  upon  the  investment  in  the  plant,  but  also 
upon  the  investment  in  wages  and  in  substance. 

As  individuals  accumulate  a  surplus  of  credits 
over  the  debits  expended  for  final  utilities,  they 
will  have  credit  available  for  investment.  They 
may  utilize  the  surplus  themselves  in  production 
from  which  they  believe  they  will  derive  greater 
profit  than  from  another  line  of  production,  or 
they  may  dispose  of  the  right  to  the  utilization  of 
these  credits  to  others  who  will  seek  to  utilize 
them  in  that  production  from  which  they  believe 
they  can  obtain  the  greater  profit.  Thus  as  cred- 
its accumulate,  there  will  be  investment  in  a  given 
line  of  production  until  the  profit  obtained  is  no 
greater  than  that  in  another  line  of  production, 
and  thus  there  is  the  tendency  toward  the  equal- 
ization of  profit.  This  tendency  operates,  how- 
ever, only  under  similar  conditions  of  risk.  There 
are  those  willing  to  take  great  hazards  in  the  hope 
of  high  profit,  and  others  who  will  not  make  in- 
vestment unless  the  prospect  of  profit  is  more  than 
probable,  and  thus  may  be  content  with  a  small 
percentage  of  return. 

Those  who  have  the  inclination  and  believe  they 
have  the  capacity  to  obtain  profit  seek  to  assume 
the  responsibility  for  the  production  and  sale 
of  utilities.  If  they  have  not  a  sufficient  total  of 
credits  to  enable  the  conduct  of  operations  as  ex- 


182  THE  FLOW  OF  VALUE 

tensive  as  they  desire,  and  believe  they  can  ob- 
tain profit  through  the  utilization  of  the  credits 
of  others,  they  are  willing  not  only  to  assume 
the  responsibility  but  to  pay  for  the  right  to  that 
utilization. 

He  who  has  property  in  credits  may  be  willing 
to  entrust  their  utilization  to  another  without  se- 
curity in  the  belief  that  the  probability  of  secur- 
ing profit  is  greater  than  that  of  incurring  loss. 
He  thus  retains  property  in  his  credits  but  dis- 
poses of  the  right  to  their  utilization.  Or  he  may 
desire  security  that  the  amount  of  his  credits  in- 
vested be  returned,  and  that  he  receive  payment 
for  the  right  to  utilize  them.  In  the  latter  case 
he  exacts  in  return  for  the  right  to  their  utiliza- 
tion a  definite  promise  of  pajinent  for  that  right, 
and  of  the  return  of  the  credits.  He  usually  ex- 
acts in  addition  to  the  promise  a  pledge  entitling 
him  to  take  over  property  of  the  pledger  in  default 
of  the  return  of  the  principal  or  in  default  of  pay- 
ment for  its  use.  He  who  makes  investment  in  a 
business  organization  without  assurance  of  re- 
turn shares  in  its  proprietorship  and  therefore  in 
its  profit,  which  may  be  disbursed  as  dividends  or 
may  be  retained  by  the  organization  as  surplus. 
If  he  makes  investment  that  is  secured  by  the 
pledge  of  property,  he  does  not  share  in  the  pro- 
prietorship. The  payment  which  he  receives  for 
the  right  to  the  utilization  of  his  credits  is  desig- 
nated as  interest,  that  which  is  paid  for  their  use. 


THE  RELATIVITY  OF  PROFIT  183 

Investment  in  proprietorship  not  only  accords  the 
right  to  participate  in  profit,  if  profit  be  obtained, 
but  it  also  imposes  a  share  in  the  liability  of  the 
organization  to  its  creditors.  On  the  other  hand, 
he  who  invests  on  security  is  himself  a  creditor  of 
the  organization.  ^ 

A  total  composed  of  the  cretiits  of  various  per- 
sons in  various  proportions  may  be  invested  in  a 
business  organization  in  return  for  participation 
in  its  proprietorship,  or  upon  pledge  securing  its 
repayment  and  that  of  interest.  The  utilization 
of  the  combined  credits  of  many  persons  under  co- 
ordinated direction  is  most  conspicuously  exem- 
plified in  the  modern  corporation.  Investment  in 
the  proprietorship  is  evidenced  by  shares  of  stock, 
investment  on  pledged  security  by  bonds.  Those 
who  hold  stock  are  entitled  to  participate  in  what- 
ever profit  may  be  obtained.  Those  who  hold 
bonds  are  entitled  to  receive  interest  during  the 
specified  period,  and  the  return  of  the  principal 
at  maturity.  The  issues  of  bonds  of  many  large 
corporations  are,  however,  refunded  at  maturity. 
That  is,  they  are  paid  by  a  new  issue,  which  may 
bear  the  same  rate  of  interest,  or  may  bear  a  dif- 
ferent rate  of  interest.  Or  they  may  be  converted 
into  stock,  or  paid  in  part.  Interest  on  bonds 
may  not  be  considered  as  paid  from  profit,  but 
as  payment  for  credits  utilized  in  production. 
To  the  extent  that  the  replacement  of  that  utilized 
in  production  depends  upon  the  credits  for  the 


184  THE  FLOW  QF  VALUE 

use  ot  which  interest  is  paid,  interest  is  an  ex- 
pense of  the  business  and  not  part  of  the  profit 
of  the  business.  It  will,  however,  always  be  profit 
to  the  investor  upon  his  investment. 

As  a  corporation  utilizes  human  effort  and 
cosmic  force  on  a  large  scale  in  the  transformation 
of  substance,  it  can,  if  the  application  of  force 
to  matter  is  most  efficiently  directed,  produce 
utilities  in  larger  volume  in  relation  to  the  effort 
applied  than  can  a  smaller  business  organization. 
Thus  it  can  obtain  greater  profit  whether  meas- 
ured in  the  aggregate,  or  by  percentage  of  return 
upon  the  investment,  or  in  relation  to  the  volume 
of  production,  at  the  same  prices  that  are  obtained 
by  a  smaller  organization.  Or  it  may  obtain 
profit  at  diminishing  prices  which  do  not  yield 
profit  to  a  smaller  organization. 

The  large  scale  of  the  operations  of  a  great  cor- 
poration tends  to  provide  opportunity  for  each 
person  in  its  service  to  exercise  his  particular 
aptitude  to  the  best  advantage.  The  most  effec- 
tive coordination  of  the  efforts  of  a  greater  num- 
ber of  persons  put  forth  in  the  respective  ways  in 
which  they  respectively  have  the  greatest  aptitude 
leads  to  the  most  efficient  results.  This  and  the 
use  of  structures,  machines,  and  appliances  that 
are  respectively  best  adapted  to  their  respective 
purposes  leads  to  the  production  of  the  greatest 
volume  of  utilities  in  relation  to  the  number  of 
persons  engaged  in  their  production.    Therefore, 


THE  RELATIVITY  OF  PROFIT  186 

it  is  possible  for  utilities  in  greater  proportions 
to  flow  to  all  persons  engaged  in  production. 

When  a  corporation  issues  shares  of  stock  or 
bonds  in  small  denominations,  it  is  possible  for 
those  who  have  accumulated  only  a  small  surplus 
of  credit  to  invest  it  toward  the  attainment  of 
profit  or  of  interest.  Therefore,  it  becomes  pos- 
sible for  an  increasing  number  of  persons  to  ac- 
cumulate credits  which  they  may  invest  in  the 
property  or  the  bonds  of  a  corporation. 

Inasmuch  as  it  is  possible  for  the  corporation 
to  obtain  larger  profit  in  proportion  to  the  num- 
ber of  persons  engaged  in  production  than  if  their 
efforts  were  exerted  in  smaller  business  organiza- 
tions in  which  there  would  be  less  efficient  coordi- 
nation, the  tendency  is  for  the  corporation  to  ob- 
tain larger  profit  in  relation  to  the  number  of 
persons  it  employs.  Therefore,  as  the  tendency 
is  for  substance,  sources  of  substance,  and  instru- 
ments of  production  to  pass  into  the  ownership  of 
those  who  can  obtain  the  greatest  profit  from  their 
utilization,  the  tendency  is  for  sources  of  sub- 
stance and  instruments  of  production  in  increas- 
ing proportion  to  become  the  property  of  the  cor- 
porations. Therefore,  the  tendency  is  for  these 
resources  and  instruments  to  become  the  property 
of  the  increasing  number  of  those  who  effectively 
exert  their  efforts,  who  do  not  spend  for  final 
utilities  all  they  receive.  And  what  is  of  still 
greater  importance,  they  obtain  a  proprietary  in- 


186  THE  FLOW  OF  VALUE 

terest  in  the  organized  and  effective  application 
of  force  in  production.  This  entitles  them  to  par- 
ticipate in  profit  obtained  if  this  application  of 
force  is  effective,  or  compels  them  to  participate 
in  loss  sustained  if  this  application  of  force  is  in- 
effective. As  the  stocks  and  bonds  of  corpora- 
tions of  established  reputation  can  readily  be 
bought  and  sold,  there  is  the  continuing  tendency 
toward  investment  in  the  issues  of  those  corpora- 
tions which  continuously  secure  profit. 

As  a  corporation  earns  a  greater  or  less  per- 
centage of  return  as  profit,  the  price  of  its  shares 
of  stock  tends  to  be  that  upon  which  the  rate  of 
return  is  the  same  as  upon  the  price  which  would 
have  to  be  paid  for  the  shares  of  stock  in  another 
corporation  conducted  under  similar  conditions  of 
stability.  Likewise  the  price  of  an  established 
business  tends  to  be  that  upon  which  the  rate  of 
profit  will  be  the  same  as  obtainable  upon  the 
price  that  would  have  to  be  paid  for  another  busi- 
ness conducted  under  similar  conditions  of  sta- 
bility. Thus  this  adjustment  of  the  price  for  pro- 
prietary participation  in  or  proprietorship  of  a 
business  to  the  rate  of  profit  is  a  manifestation  of 
the  tendency  toward  an  equalization  of  profit. 

While  the  tendency  is  for  the  corporation  to  ob- 
tain a  larger  aggregate  of  profit,  it  does  not  al- 
ways secure  a  larger  percentage  of  return  upon 
the  investment  than  was  obtained  upon  its  invest- 
ment by  the  smaller  organization  of  the   ante- 


THE  RELATIVITY  OF  PROFIT  187 

cedent  period.  Competition  developed  the  cor- 
poration which  competed  with  the  smaller  business 
organizations,  and  competition  has  developed  cor- 
porations that  compete  with  corporations.  Com- 
petition tends  to  reduce  the  rate  of  profit :  it  tends 
to  the  equalization  of  profit  under  equal  risks. 


XIV 

THE  INTERRELATIONS   OF   EFFORT,   PRICES,  AND 
PROFIT 

When  it  is  said  that  the  price  of  a  given  utility 
is  higher  than  that  of  another,  it  may  not  be  meant 
that,  for  the  results  of  the  application  of  a  cer- 
tain measure  of  effort,  more  of  other  utilities  can 
be  obtained  than  for  certain  other  results  of  the 
application  of  an  equivalent  measure  of  effort. 
No  more  may  be  meant  than  that  it  will  require 
a  greater  number  of  dollars  to  buy  a  unit  of  a 
utility  of  one  kind  than  a  unit  of  a  utility  of  an- 
other kind,  regardless  of  the  respective  propor- 
tions of  effort  applied  in  their  respective  produc- 
tion. For  example,  if  a  suit  of  clothes  is  sold 
for  fifteen  dpllars  and  a  ton  of  coal  for  five  dollars, 
it  may  be  said  that  the  price  of  the  suit  of  clothes 
is  higher  than  the  price  of  the  ton  of  coal.  It 
may  or  may  not  have  been  that  three  times  as 
much  effort  had  been  applied  in  producing  that 
suit  of  clothes  at  a  given  time  and  place  as  had 
been  applied  in  producing  that  ton  of  coal  at  that 
time  and  place.  But  certain  it  is  that,  other 
things  equal,  he  who  buys  a  suit  of  clothes  at  fif- 

188 


EFFORT,  PRICES,  AND  PROFIT         189 

teen  dollars  renders  compensation  for  all  of  the 
effort  applied  in  its  production,  and  profit  to  those 
responsible  for  the  various  stages  of  that  produc- 
tion. It  must  be  so  also  for  all  of  the  suits  of 
clothes  sold  at  fifteen  dollars,  emanating  from  a 
particular  establishment.  Likewise  sufficient  to- 
tals of  credits  must  be  received  for  all  suits  of 
clothes  sold  at  fifteen  dollars  to  afford  compensa- 
tion for  all  of  the  effort  applied  in  their  produc- 
tion and,  other  things  equal,  to  yield  profit  to 
those  responsible  for  the  various  stages  of  their 
production.  It  must  be  so  also  with  a  ton  of  coal 
sold  at  five  dollars,  and  for  all  tons  of  coal  sold 
at  five  dollars. 

It  may  be  that  a  business  organization  produc- 
ing clothes  to  be  sold  at  fifteen  dollars  a  suit  also 
produces  suits  of  clothes  of  other  grades  for  sale 
at  different  prices,  ranging  perhaps  from  twelve 
dollars  to  twenty-five  dollars  a  suit.  It  may  be 
that  operators  producing  coal  for  sale  at  five  dol- 
lars a  ton  also  produce  coal  of  different  grades  for 
sale  at  prices  ranging  perhaps  from  three  dollars 
to  six  dollars  a  ton.  Therefore,  the  total  of  the 
credits  received  from  the  sale  of  all  of  the  clothes 
at  varying  prices  must  be  sufficient  to  reimburse 
those  responsible  for  the  various  stages  of  their 
production,  and,  other  things  equal,  to  allow  them 
profit.  And  likewise  it  must  be  with  the  credits 
derived  from  the  sale  of  coal  of  the  various  grades. 
A  sufficient  number  of  persons  must  buy  all  of 


190  THE  FLOW  OF  VALUE 

the  clothes  at  the  various  prices  yielding  such  a 
total  of  credits,  and  a  sufficient  number  of  per- 
sons must  buy  all  of  the  coal  at  the  various  prices 
sufficient  to  yield  such  a  total  of  credits. 

A  modern  organization  conducting  business  on 
a  large  scale  seeks  to  transform  all  of  the  sub- 
stance it  produces  into  utilities  of  one  kind  or 
another  in  order  that  there  may  be  no  waste,  and 
that  it  may  thus  receive  the  greatest  total  of  cred- 
its. Thus  an  organization  may  produce  utilities 
serving  the  same  purpose  that  are  sold  at  different 
prices,  and  utilities  that  serve  other  purposes  which 
respectively  are  sold  at  varying  prices.  For  ex- 
ample, the  modern  packing-house  produces  choice 
cuts  of  beef,  which  the  retail  dealer  sells  at  higher 
prices  than  inferior  cuts  which,  in  turn,  are  sold 
at  higher  prices  than  soup  bones.  It  produces 
soap  in  delicately  scented  cakes  packed  in  dainty 
boxes  which  are  sold  at  higher  prices  than  soap 
perhaps  of  the  same  quality  in  bulky  cakes  that 
are  packed  by  the  gross  without  wrapping.  It 
produces  a  great  range  of  other  utilities  that  are 
sold  at  a  varying  range  of  prices.  The  audience 
in  a  theater  is  composed  of  different  groups  who 
have  paid  different  admissions  for  seats  in  the  or- 
chestra, in  the  balcony,  in  the  gallery;  varying 
rates  are  charged  by  a  railroad  company  for  the 
transportation  of  freight  of  different  kinds.  The 
intent  is  always  to  receive  credits  more  than  suffi- 
cient to  compensate  for  the  effort  applied  in  pro- 


EFFORT,  PRICES,  AND  PROFIT         191 

duction.  This  end  is  attained  in  the  case  of  many 
final  utilities  by  their  diffusion  in  such  volume 
that  large  totals  of  credits  are  obtained  from 
relatively  small  payments  by  great  numbers  of 
purchasers.  Of  such  are  the  gas  or  electricity 
that  provide  light  and  heat  for  thousands  of 
homes,  from  whose  occupants  are  received  the 
credits  that  in  their  totals  are  sufficient  for  the 
maintenance  and  operation  of  a  plant  that  cost 
millions  of  dollars.  Admissions  of  five  cents  and 
ten  cents  to  moving  pictures  provide  return 
that  enables  the  expenditure  of  many  thousands 
of  dollars  in  the  provision  of  one  picture  that 
is  presented  before  many  hundreds  of  audi- 
ences. 

In  the  production  of  clothes  have  been  applied 
the  efforts  of  a  multitude  of  persons  of  various 
grades  of  effectiveness,  and  likewise  in  the  pro- 
duction of  coal  have  been  applied  the  efforts  of 
a  multitude  of  persons  of  various  grades  of  ef- 
fectiveness. Coal  miners  can  not  readily  become 
tailors,  nor  can  tailors  readily  apply  their  efforts 
in  coal  mining.  But  antecedent  to  the  work  of  the 
tailors  has  been  that  of  many  on  farms  and  in 
mills,  a  number  of  whom  could  qualify  as  coal 
miners ;  and  there  are  many  in  the  coal  mines  who 
can  do  certain  kinds  of  work  on  the  farm  and  in 
the  mill.  There  is  a  wide  range  of  occupations, 
not  requiring  a  high  degree  of  specialization,  in 
which  there  may  be  this  exchangeability  of  effort. 


192  THE  FLOW  OF  VALUE 

Such  wage-earners  may  follow  one  employment  or 
another  as  they  can  obtain  higher  wage.  In  occu- 
pations requiring  a  higher  degree  of  specialized 
skill  and  training,  shifting  from  one  vocation  to 
another  is  usually  impracticable,  unless  there  be 
the  descent  to  an  occupation  that  does  not  require 
such  skill  and  training.  This  may  happen  when 
the  supply  of  workmen  in  a  given  line  of  produc- 
tion exceeds  for  a  considerable  period  the  demand 
for  the  results  of  their  efforts.  But  as  higher 
wages  are  obtained  in  one  vocation  requiring  spe- 
cialized skill  and  training  than  in  another,  a 
greater  proportion  of  the  coming  generation  will 
endeavor  to  fit  themselves  for  that  vocation.  As 
the  supply  increases,  the  wage  will  tend  to  fall, 
and  thus  there  is  the  tendency  toward  the  equal- 
ization of  wages  for  workers  of  similar  degrees  of 
skill  and  intelligence,  not  only  in  one  vocation  but 
in  all  vocations.  Thus  it  is  that  even  though  the 
prices  for  one  utility  may  be  higher  than  those  of 
another  as  expressed  in  dollars,  there  is  the  tend- 
ency toward  the  equalization  of  the  wages  paid  for 
effort  of  similar  effectiveness. 

If  the  profit  secured  by  those  responsible  for  a 
given  kind  of  production  be  higher  in  relation  to 
the  investment  than  in  another,  or  greater  per  unit 
of  product,  the  tendency  will  be  for  accumulated 
credits  to  flow  into  that  production.  Farms  can  be 
devoted  to  the  raising  of  crops  of  one  kind  or  of 


EFFORT,  PRICES,  AND  PROFIT         193 

another  kind ;  many  instruments  of  production  can 
be  utilized  in  the  production  of  utilities  of  one 
kind  or  another.  The  kind  of  crops  that  are  so 
raised  and  of  utilities  that  are  so  produced  will 
tend  to  be  determined  bj'-  the  degree  of  profit.  It 
may  be  that  highly  specialized  plants  with  struc- 
tures, machines,  and  appliances  designed  for  a 
particular  kind  of  production  can  not  be  shifted 
to  other  production.  As  such  production  yields 
high  profit,  the  tendency  will  be  for  accumulated 
credits  to  be  devoted  to  the  construction  of  plants 
for  similar  purposes.  If  the  profit  is  lower  than 
can  be  obtained  in  other  production,  the  tendency 
will  be  for  accumulated  credits  to  be  devoted  to 
other  production.  Thus  there  is  the  tendency  to- 
ward the  equalization  of  profit. 

There  is  a  continual  shifting  in  the  relation 
between  the  numbers  of  persons  employed  in  dif- 
ferent lines  of  production,  in  prices,  and  in  profit. 
The  tendency  is  ever  toward  equilibrium,  just  as 
the  tendency  of  the  flow  of  water  is  ever  toward 
the  level  of  the  sea.  But  as  the  flow  of  the  water 
toward  that  level  is  ever  retarded,  so  also  are  the 
currents  of  industry  and  commerce  deflected  in 
their  course  toward  industrial  and  commercial 
equilibrium.  Equilibrium  between  the  different 
kinds  of  production  is  slowly  attained.  A  busi- 
ness organization  may  secure  high  profit  at  one 
time  and  low  profit  at  another.  It  may  endeavor 
to  conceal  high  profit  in  order  that  competition 


194  THE  FLOW  OF  VALUE 

may  not  be  awakened.  The  wide  diffusion  of  in- 
formation as  to  the  receipts,  expenditures,  and 
profit  of  a  modern  corporation  that  makes  com- 
plete periodical  reports  is  a  guide  to  investors 
who  buy  the  stocks  or  bonds  of  one  corporation 
or  of  another  as  profit  is  high  or  low,  as  there  is 
prospect  of  ensuing  prosperity  or  ensuing  depres- 
sion in  one  line  of  production  rather  than  in  an- 
other. The  tendency  toward  equilibrium  is  more 
manifest  in  the  production  of  the  great  staple  util- 
ities in  which  is  utilized  substance  that  exists  or 
that  may  be  produced  in  great  abundance.  For 
example,  profit  in  the  production  and  sale  of  bitu- 
minous coal  which  underlies  vast  areas  of  the 
United  States  is  less  than  in  that  of  anthracite 
coal,  the  deposits  of  which  are  limited.  Higher 
profit  is  obtained  from  the  utilization  of  instru- 
ments of  production  closely  guarded  by  patents 
than  through  those  that  may  be  purchased  and 
utilized  by  any  one  with  the  credits  sufficient  to 
pay  for  them.  If  a  business  organization,  or 
organizations  acting  in  concert,  are  able  to  obtain 
such  prices  as  they  may  fix  for  the  utilities  they 
produce,  they  may  so  limit  their  volume  as  to 
obtain  higher  profit  per  unit  of  production  than  if 
they  met  the  wants  of  a  greater  number  of  persons 
at  a  lower  price. 

A  change  in  the  interrelations  between  supply 
and  demand  may  so  advance  the  prices  of  certain 
utilities  that  their  producers  will  reap  high  profit. 


EFFORT,  PRICES,  AND  PROFIT         196 

As  profit  is  obtained  from  the  sale  of  utilities  pro- 
duced by  the  application  of  effort  in  the  past,  the 
tendency,  in  such  a  case,  is  for  the  high  profit  to 
be  obtained  before  there  is  an  advance  in  wages  or 
in  the  prices  for  substance.  As  knowledge  of  the 
increasing  profit  comes  to  wage-earners,  they  are 
prompted  to  demand  higher  wages. 

If  one  employer  advances  wages  for  employees 
of  a  given  grade  of  effectiveness,  the  tendency  will 
be  for  other  employers  to  be  obliged  to  make  sim- 
ilar advances.  When  there  is  increasing  supply 
in  relation  to  the  demand,  or  diminishing  demand 
in  relation  to  the  supply,  prices  tend  to  fall  and 
profit  to  diminish.  There  is  diminution  of  profit 
before  employers  seek  to  reduce  wages,  and  reduc- 
tion is  nearly  always  bitterly  opposed  by  the  em- 
ployees. If  employers  producing  a  given  utility 
can  not  obtain  profit  at  the  wages  they  are  obliged 
to  pay,  they  will  be  driven  out  of  the  production 
of  that  utility.  Before  being  driven  out  of  pro- 
duction they  will,  if  they  can  not  reduce  wages, 
endeavor  so  to  advance  the  prices  of  the  utilities 
they  produce  that  they  will  obtain  profit,  or  they 
will  endeavor  the  further  to  increase  the  volume  of 
production  in  relation  to  the  number  of  persons 
employed  so  that  they  will  secure  profit  even  at 
lower  prices.  If  they  advance  the  price  of  utili- 
ties, other  things  equal,  either  their  sale  will  di- 
minish, or  the  sale  of  other  utilities  will  diminish. 

This  will  be  the  sequence  of  cause  and  effect  if 


196  THE  FLOW  OF  VALUE 

the  employees  whose  wages  are  advanced  are  no 
more  efficient  in  production  than  before  the  ad- 
vance ;  that  is,  if  no  more  than  the  same  volume  of 
utilities  be  produced  in  relation  to  the  number  of 
persons  engaged  in  their  production.  If,  however, 
coincidentally  with  the  advance  of  wages  there  is 
such  an  increase  in  production  that  the  same  meas- 
ures of  utilities  can  be  obtained  for  the  dollar,  the 
purchasing  power  of  a  measure  of  human  effort 
has  increased  in  greater  proportion  than  the 
prices  of  utilities  have  advanced. 

If  the  dollars  received  by  employers  are  exactly 
equal  to  the  dollars  paid  as  wages — that  is,  all 
wages,  including  those  paid  for  the  production  of 
substance — they  can  continue  in  production  so 
long  as  their  machines,  structures,  and  appliances 
do  not  wear  out.  If  the  dollars  received  by  em- 
ployers enable  them  no  more  than  to  pay  wages 
and  renew  the  machines,  structures,  and  appli- 
ances, they  can  continue  in  the  production  of  the 
same  volume  of  utilities,  but  they  will  receive  no 
profit  wherewith  to  pay  the  wages  requisite  to  en- 
list additional  effort,  provide  additional  substance, 
and  additional  machines,  structures,  and  appli- 
ances wherewith  to  produce  an  increasing  volume 
of  utilities  to  meet  the  increasing  wants  of  an 
increasing  population.  That  is,  they  will  not  be 
able  to  provide  the  organization  and  instruments 
of  production  by  means  of  which  employment  can 
be  given  to  the  increasing  population  and  by 


EFFORT,  PRICES,  AND  PROFIT         197 

means  of  which  continually  increasing  wants  can 
be  met. 

Those  who  continue  to  produce  utilities  with  the 
application  of  a  decreasing  proportion  of  effort 
will,  other  things  equal,  continue  to  obtain  profit. 
So  long  as  there  is  the  demand  for  these  utilities 
at  prices  that  enable  the  less  eflScient  to  continue 
in  their  production,  the  more  efficient  will  obtain 
greater  profit.  So  long  as  the  total  of  credit  ob- 
tained from  the  production  and  sale  of  a  given 
utility  is  larger  in  proportion  to  the  effort  applied 
in  its  production  than  the  total  obtained  from  the 
production  and  sale  of  another  utility,  will  the 
profit  be  greater.  It  may  be  that  this  relatively 
greater  profit  will  enable  the  purchase  of  sources 
of  substance,  substance,  or  instruments  of  pro- 
duction, from  the  utilization  of  which  profit  is  de- 
rived in  smaller  measure.  Thus  those  who  reap 
extraordinary  profit  from  an  extraordinary  but 
temporary  demand  may  make  investment  in  an 
organization  that  secures  smaller  but  continuing 
profit. 

Efficiency  means  an  increased  volume  of  pro- 
duction of  a  utility  of  given  kind  and  quality  in 
relation  to  the  effort  expended.  The  more  effi- 
cient the  production,  the  less  is  the  number  who 
have  to  be  supported  by  the  credits  derived  there- 
from. Therefore,  whether  the  production  of  a 
given  utility  continue  to  fall  in  relation  to  demand 
or  whether  it  continue  to  increase  in  relation  to 


198  THE  FLOW  OF  VALUE 

demand,  the  more  efficient  will  be  enabled  to  con- 
tinue in  production  longer  than  the  less  efficient. 

It  is  to  be  emphasized  that  credits  which  con- 
stitute profit  are  of  no  avail  unless 

1.  They  are  expended  to  enlist  effort  in  the  pro- 
duction of  an  increased  volume  of  utilities  of  the 
same  kind  from  which  they  were  derived.  It 
would  be  without  avail  to  produce  this  increased 
volume  unless  there  were  the  increased  demand 
which  would  enable  them  to  be  sold  at  prices  that 
would  bring  credits  exceeding  the  debits  ex- 
pended. 

2.  They  are  expended  to  enlist  effort  in  the  pro- 
duction of  utilities  of  another  kind  such  as  were 
already  produced.  If  so,  the  volume  of  the  pro- 
duction of  these  other  utilities  would  be  increased. 
They  would  not  find  sale  at  the  price  that  would 
yield  profit  unless  the  volume  of  other  producers 
were  inadequate  to  meet  the  demand  at  prices 
which  would  yield  profit,  or  unless  they  could  be 
produced  at  less  expense  than  that  of  other  pro- 
ducers and,  therefore,  sold  at  lower  prices  which 
would  yield  profit,  and  at  the  same  time  tend  to 
drive  other  and  less  efficient  producers  out  of  their 
production. 

3.  They  are  expended  to  enlist  effort  in  the  pro- 
duction of  utilities  of  other  kinds  such  as  would 
substitute  utilities  previously  produced.  If  they 
were  more  desirable  than  the  utilities  they  substi- 


EFFORT,  PRICES,  AND  PROFIT         199 

tuted,  it  is  not  impossible  that  higher  prices  could 
be  obtained  for  them.  If  they  were  neither  more 
nor  less  desirable,  they  would  tend  to  substitute 
the  other  utilities  to  the  extent  that  the  prices  were 
less. 

4.  They  are  expended  to  enlist  effort  in  impart- 
ing that  education  and  training  to  the  coming  gen- 
eration which  tends  to  fit  it  for  future  usefulness. 
This  includes  the  endowment  of  educational  insti- 
tutions and  contribution  to  their  support. 

5.  They  are  expended  to  enlist  effort  in  research 
that  may  directly  serve  to  eliminate  disease,  that 
may  serve  to  make  more  efficient  the  production  of 
utilities,  or  that  may  extend  the  range  of  knowl- 
edge. This  includes  the  endowment  and  support 
of  organizations  so  engaged. 

6.  They  are  expended  to  enlist  effort  in  the  pro- 
motion of  intellectual,  esthetic,  and  moral  eleva- 
tion. This  includes  the  endowment  and  support 
of  institutes  of  art,  of  music,  and  of  museums. 

7.  They  are  expended  to  enlist  effort  in  the 
ministration  of  that  charity  which  tends  to  build 
up  the  unfortunate,  or  to  support  the  worthy  in- 
digent. This  includes  the  endowment  and  support 
of  hospitals  and  asylums  and  contributions  to  ef- 
fective charitable  organizations. 

8.  They  are  expended  to  enlist  effort  in  minis- 
tering to  the  ease  and  comfort  of  the  possessor,  or 
for  the  results  of  effort  desired  for  personal  grati- 
fication. 


200  THE  FLOW  OF  VALUE 

If  there  were  no  profit,  civilization  would  lose  all 
that  civilization  means.  There  could  not,  for  ex- 
ample, be  provision  for  those  who  practise  the 
professions  and  the  arts  unless  there  was  a  sur- 
plus of  the  essential  utilities  of  food,  clothing,  and 
shelter  over  those  consumed  by  the  persons  whose 
efforts  are  enlisted  in  their  production.  Large 
measures  of  profit,  to  be  sure,  are  expended  for 
personal  gratification.  This  may  be  beneficial,  or 
it  may  be  deleterious.  Deleterious  expenditure 
tends  to  diminish  as  the  diffusion  of  good  judg- 
ment and  good  taste  places  it  under  the  ban. 

As  the  coordination  of  the  efforts  of  employer 
and  employees,  especially  when  applied  in  connec- 
tion with  cosmic  force,  leads  to  the  provision  of 
things  the  community  wants  in  greater  volume 
and  variety  than  would  otherwise  be  provided,  the 
quest  for  profit  serves  not  only  the  selfish  ends  of 
those  who  seek  gain  but  it  serves  an  altruistic  end 
for  the  benefit  of  the  entire  population.  The  com- 
munity enlists  the  efforts  of  employers  in  produc- 
tion through  the  hope  of  profit  which  they  may  or 
may  not  obtain.  Employers  enlist  the  efforts  of 
employees  by  the  payment  of  wages  which,  as  a 
rule,  the  employees  are  certain  to  obtain. 

As  all  men  seek  to  obtain  the  most  they  can  for 
that  with  which  they  part,  it  follows  that  men  will 
not  dispose  to  employers  of  the  right  to  utilize 
their  efforts  unless  they  can  obtain  more  by  so 


EFFORT,  PRICES,  AND  PROFIT         201 

doing  than  by  producing  and  selling  utilities  them- 
selves. Therefore,  the  desire  for  profit  on  the  part 
of  those  who  employ  workers  for  wage  leads  to  an 
altruistic  end  in  that  wage-earners  obtain  more  in 
return  for  their  efforts  than  they  otherwise  could. 
Thus  not  only  do  employers  employ  wage-earners 
with  the  intent  of  utilizing  their  efforts  toward  the 
acquirement  of  profit,  but  wage-earners  employ 
their  employers  as  instrumentalities  toward  a  bet- 
ter living  than  they  could  make  for  themselves. 

As  the  human  race  has  multiplied  more  rapidly 
than  intelligence  has  diffused,  by  far  the  larger 
proportion  of  men  now  living  are  those  whose  ca- 
pacity for  production  is  limited  to  that  applica- 
tion of  effort  in  which  is  not  required  a  high  de- 
gree of  intelligence.  The  number  of  such  men 
who  will  be  given  employment  at  a  given  time  will 
depend  upon  the  measure  of  effort  that  employers 
deem  requisite  in  their  production  of  future  utili- 
ties. Employers  pay  for  the  force  they  need.  If 
they  require  human  effort  only  occasionally,  they 
will  employ  men  sporadically,  or  temporarily,  by 
the  hour  or  the  day.  In  order  that  they  may  do 
this,  there  must  be  a  supply  of  men  willing  to  ac- 
cept such  employment.  In  nearly  every  commu- 
nity are  those  who  make  a  living  by  doing  odd  jobs, 
or  by  regularly  dividing  their  efforts  among  a 
number  of  employers. 

The  first  and  foremost  utility  is  food.  No  mat- 
ter how  great  and  varied  the  volume  of  utilities  in 


W2  THE  FLOW  OF  VALUE 

which  a  man  may  have  property,  he  must  have 
food.  If  there  could  be  a  situation  so  extreme 
that  he  would  be  obliged  to  part  with  all  of  his 
possessions  in  exchange  for  the  food  necessary  to 
maintain  his  existence,  it-  would  be  a  choice  be- 
tween that  exchange  and  death.  If  a  man  have 
property  in  no  utilities  that  can  be  exchanged  for 
food  or  used  in  the  production  of  food,  he  is 
obliged  to  put  forth  his  efforts  in  behalf  of  an 
employer  in  exchange  for  food.  Such  men  will  not 
find  employment,  as  a  rule,  unless  the  results  of 
their  effort  are  more  desired  by  an  employer  than 
the  wage  which  enables  food  to  be  obtained. 

Clothing  is  essential  to  civilized  existence,  but 
it  does  not  have  to  be  renewed  from  day  to  day  as 
does  food.  Shelter  likewise  is  essential  to  civil- 
ized existence,  but  mere  existence  can  be  main- 
tained without  it.  There  are  usually  a  number  of 
wanderers — the  tramps  of  this  country — who  do 
odd  jobs  when  they  must  to  obtain  food,  now  and 
then  work  perhaps  for  several  days  at  a  time  when 
necessary  to  replenish  their  clothing,  but  who  sleep 
in  the  open  or  in  such  temporary  shelter  as  they 
can  appropriate.  They  drift  between  mine,  farm, 
and  lumber  camp,  sometimes  working  on  railroad 
gradings  and  in  the  excavations  for  buildings. 
They  find  temporary  employment  at  one  place  or 
another,  largely  because  there  are  phases  of  pro- 
duction that  necessarily  depend  upon  the  seasons. 
For  example,  there  is  a  greater  demand  for  men 


EFFORT,  PRICES,  AND  PROFIT         203 

on  the  farms,  in  the  mines,  and  in  the  building 
trades  at  one  time  of  the  year  than  at  another. 
There  are  certain  kinds  of  production  that  are 
seasonal  because  the  demand  varies  from  season 
to  season. 

But  the  great  body  of  wage-earners  live  in  fixed 
habitations  for  considerable  periods,  working 
steadily,  usually  at  specialized  tasks,  when  they 
have  steady  employment.  They  must  have  the 
essential  utilities  coincidentally,  and  they  must 
have  them  continuously.  They  can  not  devote  all 
of  their  wages  to  the  procurement  of  any  one  es- 
sential, to  the  exclusion  of  the  others.  Therefore, 
their  wages  must  be  paid  continuously,  and  they 
must  be  sufficient  to  enable  them  to  obtain  at  least 
the  utilities  essential  to  maintain  them  in  condi- 
tion to  put  forth  the  effort  of  which  they  are  ca- 
pable. This  is  of  advantage  to  the  employer  as 
well  as  to  the  employee.  It  is  to  the  advantage  of 
both  that  there  be  the  utmost  attainable  continuity 
of  employment.  And  it  is  of  advantage  to  the 
whole  community;  for  the  greater  the  proportion 
of  the  employed,  the  greater  is  the  volume  of 
utilities  produced,  and  the  less  is  the  proportion 
of  those  who  must  be  supported  without  re- 
turn. 

Those  who  put  forth  effort  may  be  grouped  in 
tiers  as  of  a  pyramid.  At  the  bottom  are  those 
who  put  forth  crude,  physical  effort.  The  next 
and  a  shorter  tier  is  composed  of  those  who  put 


204  THE  FLOW  OF  VALUE 

forth  skilled  effort.  Above  that  is  a  still  shorter 
tier  of  those  who  put  forth  highly  skilled  effort. 
Above  that  is  the  still  shorter  tier  of  those  who 
guide  and  direct  the  application  of  the  efforts  of 
others.  At  the  top  is  the  shortest  tier,  of  those 
who  design  and  conceive,  direct  and  manage. 

If  those  putting  forth  crude,  physical  effort, 
who,  for  example,  receive  as  wage  two  dollars  a 
day,  were  advanced  to  three  dollars  without  there 
being  any  change  in  the  volume  of  production,  and 
the  dollars  obtained  by  the  individuals  of  the  other 
groups  remained  unchanged,  obviously  the  crude, 
physical   workers   could    obtain,   for    a   time,    a 
greater  proportion  of  utilities.    Likewise,  if  those 
putting  forth  skilled  effort  who  had  received  three 
dollars  a  day  were  suddenly  advanced  to  four  dol- 
lars or  five  dollars,  they  would  be  enabled  for  a 
time  to  obtain  a  greater  proportion  of  utilities. 
If  crude,  physical  laborers  were  advanced  from 
two  dollars  to  three  dollars  and  skilled  workers 
continued  to  receive  three  dollars  a  day,  not  so 
many  skilled  workers  would  find  employment  be- 
cause of  the  necessity  of  employers  to  pay  in- 
creased wages  to  the  unskilled  workers.     Thus  the 
number  of  workers  competing  for  employment  at 
three  dollars  a  day  would  be  increased.    But  em- 
ployers would  employ  no  more  of  them  than  re- 
quired   in    their    production,    and,    therefore,    a 
smaller  proportion  of  unskilled  workers  would 
find  employment.    Moreover,  inasmuch  as  employ- 


EFFORT,  PRICES,  AND  PROFIT         205 

ers  would  be  obliged  to  pay  three  dollars  to  the 
unskilled  laborers  to  whom  they  had  only  paid 
two  before,  they  would  be  obliged  to  expend  more 
dollars  in  production.  The  result  would  be  that 
there  would  be  less  profit  available  for  future  pro- 
duction, or  else  the  utilities  produced  would  have 
to  be  sold  for  higher  prices.  Therefore,  other 
things  equal,  the  groups  whose  wages  remained 
unchanged  could  obtain  not  only  a  smaller  pro- 
portion of  final  utilities  at  a  given  time,  but  a  still 
smaller  proportion  in  the  future.  It  is  obvious 
that  this  result  would  be  augmented,  if  coinci- 
dentally  with  the  increase  in  wages  there  were  a 
decrease  in  the  productivity  of  each  worker. 

Here  it  is  to  be  emphasized  that,  as  a  rule,  it  is 
the  large  supply  of  crude,  physical  laborers  in 
relation  to  the  demand  for  such  effort  as  they  can 
put  forth  that  causes  their  wages  to  be  of  the  low- 
est. It  sometimes  is  that  a  change  in  the  inter- 
relations between  supply  and  demand  causes  their 
wages  to  be  at  a  higher  rate  than  of  those  of  more 
developed  intelligence.  For  example,  at  times  of 
harvest  the  demand  for  farm  laborers  is  often  so 
great  that  they  command  wages  higher  than  are 
obtained  by  many  school  teachers,  and  many  kinds 
of  clerks.  The  system  of  education  generally  fos- 
tered throughout  many  decades  in  the  United 
States  has  tended  to  give  both  sexes  the  knowledge 
that  may  be  utilized  in  teaching  school,  without 
qualifying  them  for  putting  forth  their  efforts  in 


206  THE  FLOW  OF  VALUE 

other  ways.  Moreover,  many  so  equipped  engage 
in  teaching  while  preparing  for  other  pursuits. 
Thus  the  supply  of  school  teachers  has  ever  tended 
to  be  large  in  relation  to  the  demand,  and  their 
wages  to  be  low.  For  similar  reasons,  the  supply 
of  those  competent  to  do  routine  clerical  work  has 
tended  to  be  large  in  relation  to  the  demand,  and 
their  wages  to  be  low.  The  education  which  aids 
toward  the  attainment  of  the  higher  wage  is  not 
that  which  does  no  more  than  to  cultivate  a  taste 
for  literature  and  the  refinements  of  living,  but 
that  which  fits  for  the  kinds  of  productivity  for 
which  there  is  the  greater  demand. 

When  we  say  that  in  return  for  effort  put  forth 
at  his  behest  an  employer  must  render  to  an  em- 
ployee at  least  the  utilities  necessary  to  the  main- 
tenance of  his  existence  during  the  period  of  his 
employment,  we  express  what  literally  happens  in 
the  case  of  certain  corporations  such  as  those  en- 
gaged in  mining  and  lumbering,  whose  operations 
usually  are  conducted  at  places  remote  from  com- 
munities engaged  in  other  pursuits.  The  com- 
pany owns  the  house  for  which  the  miners  pay 
rent ;  it  owns  the  stores  from  which  the  miners  ob- 
tain food,  clothing,  and  many  other  supplies.  The 
company  employs  the  physician  who  ministers  to 
the  employees  and  their  families,  and  frequently 
arranges  for  theatrical  performances  and  other 
forms  of  recreation.    The  wages  of  the  employees 


EFFORT,  PRICES,  AND  PROFIT         207 

are  computed  in  dollars.  Their  rent  and  their 
purchases  at  the  company  stores  and  their  avail 
of  other  utilities  provided  by  the  company  are 
computed  in  dollars.  At  the  end  of  the  pay  pe- 
riod, usually  a  fortnight  or  a  month,  the  wages  of 
the  employee  measured  by  dollars  are  balanced 
against  his  purchases  nleasured  by  dollars.  There 
has  been  demand  on  the  part  of  the  company  for 
the  services  of  the  employee,  and  there  has  been 
demand  on  the  part  of  the  employee  for  the  utili- 
ties received  as  wages.  The  employer  has  ex- 
pended of  his  credits  for  final  utilities  which  he 
pays  the  employees  as  wages.  Generally,  how- 
ever, the  processes  of  production  and  exchange 
are  so  specialized  that  an  employer  is  continuously 
in  possession  only  of  the  utilities  used  in  his  busi- 
ness. The  wages  paid  to  his  employees  are  com- 
puted in  dollars  and  are  paid  to  them  in  dollars. 
In  exchange  for  dollars,  they  receive  the  utilities 
they  desire  at  the  stores  of  retail  dealers,  and  they 
pay  to  the  landlord  the  rent  for  their  habitation  in 
dollars.  The  employer  transfers  to  his  employees 
as  wages  the  credits  with  which  they  buy  final 
utilities. 

Profit  may  be  obtainable  not  only  by  an  em- 
ployer who  enlists  the  efforts  of  employees,  but 
by  an  individual  who  puts  forth  his  individual 
efforts  in  the  production  of  utilities  for  which  he 
receives  more  than  sufficient  to  enable  the  replace- 


208  THE  FLOW  OF  VALUE 

ment  of  that  used  and  consumed.  He  uses  and 
consumes  food,  clothing,  and  shelter.  Their  re- 
placement, in  that  it  maintains  his  vitality,  is  in  a 
sense  the  replacement  of  the  force  he  has  applied. 
If  he  has  utilized  substance,  it  also  must  be  re- 
placed. That  is,  he  must  replace  the  force  and 
he  must  replace  the  matter.  If  he  is  able  to  do 
more  than  this,  he  has  obtained  that  which  in  es- 
sence is  profit,  which  may  continue  to  increase 
until  his  individual  effort  is  no  longer  adequate. 
As  his  profit  increases,  he  may  become  an  em- 
ployer himself,  or  he  may  dispose  to  others  of  the 
right  to  utilize  his  accumulation  and  continue  in 
the  production  limited  by  the  application  of  his 
individual  effort. 

So  also  with  one  who  works  for  wage.  If  the 
wage  is  more  than  sufficient  to  buy  the  final  utili- 
ties for  the  use  and  consumption  of  himself  and 
those  dependent  upon  him,  he  may  engage  in  indi- 
vidual production  or  may  become  an  employer. 
Thus,  whether  a  man  work  for  himself  or  work 
for  an  employer,  it  may  be  possible  for  him  to 
accumulate  credits  which  can  be  utilized  in  increas- 
ing production.  Therefore,  credits  accumulated 
through  saving  are  akin  to  profit. 

As  profit  is  obtained  by  the  production  of  things 
that  people  want  and  for  which  they  are  willing 
to  pay  more  than  sufficient  to  make  the  replace- 
ment, it  is  the  wants  of  the  population  which  deter- 
mine the  kinds  of  production  that  will  be  engaged 


EFFORT,  PRICES,  AND  PROFIT         209 

in  by  those  seeking  profit.  Therefore,  in  the  last 
analysis  it  is  the  wants  of  the  population  which 
determine  the  manner  in  which  human  effort  shall 
be  put  forth,  which  determine  the  respective  pro- 
portions of  the  population  whose  efforts  are  en- 
listed in  respective  kinds  of  production.  Those 
who  assume  the  responsibility  of  production  are 
intermediaries  who  seek  to  interpret  the  wants  of 
the  population  and  to  obtain  profit  by  directing 
human  effort  in  the  channels  through  which  these 
wants  are  met.  Those  who  are  successful  in  thus 
interpreting  the  wants  of  the  population  and  in 
meeting  those  wants  continue  to  be  responsible 
for  production.  They  continue  to  give  employ- 
ment to  those  who  have  not  the  capacity  for  such 
interpretation  and  achievement.  Because  of 
changes  in  the  interrelations  between  supply  and 
demand,  the  prices  of  certain  utilities  may  rise  and 
the  prices  of  other  utilities  may  fall.  Wages  may 
vary,  prices  may  fluctuate,  and  profit  may  rise  and 
fall,  but  effort  must  be  put  forth  continually  that 
wants  continually  may  be  met.  Therefore,  it  is 
that  the  great  body  of  the  population  continually 
find  enaployment  to  a  greater  or  less  degree,  and 
their  wants  are  continually  met  in  greater  or  less 
degree.  Effective  producers  continually  find  mar- 
ket for  their  products  at  a  profit;  efficient  em- 
ployees continually  find  employment.  An  indus- 
trial cataclysm  may,  however,  cause  a  profound 
modification  in  these  relations. 


210  THE  FLOW  OF  VALUE 

Any  social  or  political  entity,  a  town,  a  city,  a 
nation,  continues  under  the  same  designation,  al- 
though the  individuals  change  and  the  relations 
between  the  individuals  within  that  community 
change.  The  community  may  grow  or  decline,  it 
may  have  a  low  rate  of  mortality  at  one  time  and 
suffer  the  blight  of  disease  at  another.  There  is 
rotation  in  elective  and  appointive  oflSce.  Wage- 
earners  may  become  employers,  and  employers 
may  become  wage-earners.  Families  may  pros- 
per, or  may  disintegrate.  Members  of  a  commu- 
nity may  depart  from  it,  and  those  of  other  com- 
munities may  come  into  it.  Friendships  may 
strengthen  and  may  dissolve.  The  name  by  which 
that  community  continues  to  be  known  may  desig- 
nate a  "totally  different  group  of  individuals  from 
one  generation  to  another,  and  the  characteristic 
traits  of  that  community  may  utterly  change  in 
the  course  of  time. 

It  is  so  also  with  the  human  being.  From  birth 
to  death  a  name  attaches  to  each  person,  but  there 
is  unceasing  change  in  the  constituent  parts  of 
blood,  bone,  and  sinew,  in  the  matter  of  the  nerves 
and  the  brain.  By  the  action  and  reaction  of  the 
vital  forces,  nourishment  flows  in  proportions  to 
the  different  organs.  Abundance  of  nutrition 
tends  to  fullness  of  form,  impairment  to  wasting 
away,  but  so  long  as  there  is  life  the  body  is  that 
of  the  person  who  bears  the  name  that  is  a  con- 
tinuing designation.    When  it  is  said  that  the 


EFFORT,  PRICES,  AND  PROFIT         211 

body  is  that  of  the  person,  there  is  the  implica- 
tion that  the  body  is  not  all  that  constitutes  a 
person.  But  the  mind  and  the  soul  can  not  have 
manifestation  unless  there  is  the  nurture  of  the 
body. 

All  of  production,  of  buying  and  selling,  all  of 
that  which  constitutes  the  economic  functions  of 
the  social  organism  are  akin  to  the  absorption  by 
the  body,  the  transformation  of  food  into  the  nour- 
ishing material  that  flows  to  its  different  parts  and 
enters  into  their  structure.  As  there  is  the  inter- 
working  of  the  activity  of  the  various  organs  in 
the  activity  of  the  individual  organism,  so  also  is 
there  the  interworking  of  the  economic  functions 
in  the  activity  of  the  social  organization.  The 
transformation  of  the  elements  that  enter  into  nu- 
trition and  their  flow  to  the  various  organs  is 
determined  by  the  vital  processes  that  are  beyond 
human  knowledge.  The  gathering  and  extracting 
of  substance  from  earth  and  air  and  sea,  its  trans- 
formation into  utilities  that  meet  human  wants, 
and  the  apportionment  of  these  utilities  among 
humankind  are  in  obedience  to  a  force  as  myste- 
rious as  that  which  dominates  the  vital  processes, 
but  its  manifestation  is  in  activity  directed  by  the 
mind  of  man.  That  which  in  the  realm  of  his 
conscious  activity  takes  the  place  of  the  impalpa- 
ble force  that  balances  and  compensates  the  flow 
of  nourishment  to  the  organs  of  the  body,  is  the 
dollar.    The  dollar  is  an  expression  of  relations 


212  THE  FLOW  OF  VALUE 

that  may  change  from  day  to  day  in  ways  similar 
to  that  in  which  the  body  changes  from  day  to  day. 
But  the  changes  in  the  social  organization  when 
in  a  state  of  health  can  no  more  be  abrupt  and 
turbulent  from  day  to  day,  than  can  the  changes  in 
the  body  in  a  state  of  health  be  violent  from  day 
to  day. 

The  radical  changes  in  the  body  during  a  life- 
time, and  the  radical  changes  in  the  social  organ- 
ization throughout  long  periods,  are  more  analo- 
gous to  those  that  have  taken  place  in  living  beings 
as  life  has  evolved.  The  lowest  type  of  animate 
existence  is  simple  in  form  and  simple  in  function, 
and  so  also  is  the  early  economic  structure  and 
function.  The  highest  forms  of  living  beings  are 
exceedingly  complex  in  structure,  with  functions 
marvelously  intricate,  varied,  and  interwoven,  and 
so  also  is  the  developed  economic  organization. 


XV 

THE  FLOW   OF   DEBITS  AND   CREDITS 

With  the  passing  instant  the  present  merges 
into  the  past:  with  the  coming  instant  the  future 
presses  on  the  present.  The  dollar  received  has 
been  obtained  by  the  sale  of  utilities  produced  in 
the  past :  the  dollar  expended  is  for  utilities  to  be 
used  in  the  future.  Final  utilities  are  the  result 
of  effort  applied  in  the  past.  At  the  time  of  pur- 
chase they  are  bought  to  serve  the  purpose  of  the 
individual,  it  may  be  in  the  succeeding  instant  or 
it  may  be  in  time  to  come.  When  there  is  transfer 
of  property  in  sources  of  substance,  substance, 
instruments  of  production,  or  intermediate  utili- 
ties, they  are  bought  for  utilization  in  that  future 
which  comes  with  the  passing  hours  or  in  the  fu- 
ture more  remote.  Thus  credit  is  derived  from 
the  past,  and  debit  is  incurred  for  the  future.  As 
for  every  sale  there  must  be  a  credit,  and  for  every 
purchase  there  must  be  a  debit;  and  as  there  can 
not  be  a  sale  without  a  purchase  or  a  purchase 
without  a  sale,  the  chain  of  credits  and  debits,  the 
flow  of  debits  and  credits,  is  continuous. 

When  a  final  utility  in  the  form  of  food  is  pur- 
chased by  the  consumer,  there  is  credit  to  the 

213 


2U  THE  FLOW  OF  VALUE 

seller  and  debit  to  the  buyer,  but  there  is  no  sale 
of  that  food  to  give  rise  to  offsetting  credit  to  its 
buyer.  Food  has  served  its  purpose  when  con- 
sumed by  the  individual.  It  is  likewise  with  cloth- 
ing as  it  is  worn.  If  shelter  be  obtained  by  pay- 
ment of  rent,  it  is  likewise  with  shelter.  Debits  so 
incurred  for  the  final  utilities  of  food,  clothing,  and 
shelter  contribute  to  the  maintenance  of  the  vital- 
ity of  the  individual,  from  which  emanates  effort 
that  may  be  applied  in  that  production  which  gives 
rise  to  credits  in  the  future.  It  is  likewise  with 
other  ministration  to  the  wants  of  the  body,  or 
ministration  to  the  emotions,  or  to  the  intellect, 
that  is  consumed  as  it  is  rendered.  For  example, 
fee  to  physician,  admission  to  concert  or  play, 
give  rise  to  debits  to  the  account  of  those  who 
pay  them.  Such  services  may  be  of  benefit  in  pro- 
moting physical  activity,  or  in  giving  moral  or 
intellectual  stimulus,  that  conduces  to  the  attain- 
ment of  credits  in  the  future,  or  they  may  not. 
The  debits  that  have  been  incurred  in  the  purchase 
of  such  final  utilities  become  credits  to  purveyors 
of  food  and  clothing,  to  physician,  musician,  and 
actor.  The  purveyors  of  food  must  replace  the 
stocks  they  have  sold.  Physician,  musician,  and 
actor  must  maintain  the  vitality  that  enables  them 
to  continue  in  their  ministration.  At  the  time  of 
death  the  productivity  of  the  individual  ceases. 
If  it  cease  before  death,  he  will  be  obliged  to  sus- 
tain the  remainder  of  his  life  by  the  expenditure 


THE  FLOW  OF  DEBITS  AND  CREDITS     215 

of  accumulated  savings,  or  from  rentals,  if  he  have 
acquired  property  yielding  rent,  or  from  other 
investments  that  he  may  have  made.  Or  else  he 
will  become  dependent  upon  others  for  that  sup- 
port for  which  he  renders  no  economic  return. 

While  all  of  effort  applied  in  production  is  ap- 
plied toward  the  production  of  final  utilities  that 
are  used  and  consumed  by  the  individual,  a  large 
proportion  is  exerted  in  the  provision  and  utiliza- 
tion of  utilities  not  immediately  consumed  by  the 
individual.  The  less  the  proportion  of  effort  im- 
mediately devoted  to  the  production  of  the  final 
utilities  that  are  consumed  by  the  individual,  the 
greater  is  the  proportion  that  may  be  devoted  to 
the  provision  of  sources  of  substance  and  instru- 
ments of  production  that  tend  to  accumulate  for 
utilization  in  the  production  of  final  utilities  in 
greater  volume  to  meet  a  greater  volume  of  wants. 
Therefore,  were  every  credit  of  the  final  purchaser 
transmuted  into  the  debits  for  final  utilities  that 
minister  to  the  vitality  from  which  emanates  force 
applied  in  further  production,  it  would  be  that,  in 
the  endless  transmutation,  credits  would  ever  give 
rise  to  debits  that  in  turn  would  give  rise  to  cred- 
its, augmenting  both  in  the  aggregate  and  in  rela- 
tion to  the  population.  That  the  tendency  of  all 
production  is  toward  siich  an  augmentation  is 
manifested  by  interest,  which  is  based  on  the  prac- 
ticability of  the  debits  into  which  credits  are  con- 
verted being  utilized  in  the  attainment  of  a  greater 


216  THE  FLOW  OF  VALUE 

total  of  credits.  The  rate  of  interest  in  general 
is  based  on  the  belief  that  there  is  a  certain  ratio 
of  such  augmentation,  and  the  rate  of  interest  in 
particular  upon  the  degree  of  probability  of  the 
particular  ratio  of  such  augmentation.  Further 
evidence  of  this  tendency  is  afforded  by  all  invest- 
ment toward  the  attainment  of  dividends,  of  profit. 

If  every  person  always  received  for  the  results 
of  his  effort  a  return  equivalent  to  that  received  by 
any  other  person  for  putting  forth  effort  of  the 
same  degree  of  effectiveness,  the  whole  community 
would  be  paying  to  each  person  for  a  given  meas- 
ure of  the  results  of  effort  that  which  it  would 
have  to  pay  to  another  for  an  equivalent  measure 
of  the  results  of  effort.  Each  person  would  obtain 
the  same  command  over  utilities  as  any  other  per- 
son contributing  to  production  in  the  same  meas- 
ure. 

Therefore  it  would  be  that,  if  for  the  results  of 
effort  for  which  he  was  responsible  one  person  re- 
ceived greater  command  over  utilities  than  an- 
other, it  would  be  because  such  results  of  effort 
could  not  be  obtained  for  less.  The  person  re- 
ceiving the  greater  return  would  have  been  more 
effective  in  meeting  the  wants  of  others. 

Therefore  it  would  be  that  he  who  received 
larger  command  over  utilities  than  another  would 
not  be  depriving  that  other  either  by  receiving  or 
expending  his  larger  command ;  that  is,  his  greater 


THE  FLOW  OF  DEBITS  AND  CREDITS      217 

credit.  If  he  buy  final  utilities  in  the  full  measure 
that  meets  his  wants  and  pay  no  lower  price  for 
them  than  others  pay,  he  is  depriving  no  one  of 
employment,  no  one  of  that  in  which  he  has  prop- 
erty. On  the  contrary,  he  is  incurring  his  share 
of  the  debits  that  enable  the  continuing  production 
of  these  utilities. 

Therefore,  if  those  whose;  credits  exceed  their 
wants  for  final  utilities  place  the  surplus  in  the 
way  of  that  utilization  which  conduces  to  an  in- 
creacsing  production  of  utilities  of  general  useful- 
ness, they  are  not  only  not  depriving  others,  but 
are  affording  means  for  the  employment  of  others. 
Thus  those  who  invest  their  credits  in  return  for 
interest  or  in  the  hope  of  dividends  are  rendering 
a  benefit  to  their  fellowmen.  Likewise  those  who 
obtain  the  utilization  of  credits  in  return  for  which 
they  pledge  interest  or  the  right  to  participate  in 
profit,  are  conferring  a  benefit  by  the  production 
of  utilities.  That  benefit  receives  recognition  if 
from  the  sale  of  utilities  thus  produced  there  is 
obtained  profit.  If  from  the  utilities  produced  the 
credits  received  are  not  equal  to  the  debits  in- 
curred, there  has  been  overproduction,  credits  are 
annihilated. 

Moreover,  when  a  man  expends  surplus  credit 
thus  obtained  for  a  final  utility  that  affords  per- 
sonal gratification,  he  is  not  depriving  others.  If, 
for  example,  he  purchases  for  one  thousand  dol- 
lars a  rare  painting  by  an  artist,  who  perhaps  long 


218  THE  FLOW  OF  VALUE 

ago  passed  from  the  living,  and  makes  immediate 
payment  with  a  check  on  a  bank,  utilities  produced 
and  sold  in  the  past  have  provided  the  credit 
against  which  he  draws.  He  takes  the  painting 
into  his  house,  where  it  continues  to  afford  grati- 
fication so  long  as  he  retains  it.  What  relation  in 
the  flow  of  debits  and  credits  does  the  purchase 
and  sale  of  that  painting  have  to  human  effort  put 
forth  in  the  production  of  utilities  ?  The  buyer  was 
entitled  to  spend  his  credits  as  he  might  desire. 
Inasmuch  as  he  expended  them  for  the  painting, 
it  is  fair  to  assume  that  he  did  not  deprive  himself 
of  food,  clothing,  or  shelter  and,  therefore,  did 
not  diminish  the  demand  for  these  essential  utili- 
ties, or  deprive  men  of  employment  in  their  pro- 
duction. If  the  picture  were  purchased  from  one 
in  need,  who  expended  the  one  thousand  dollars 
for  essential  utilities,  the  results  of  past  effort 
may  have  helped  to  tide  an  unfortunate  over  a 
period  of  adversity,  or  they  may  have  served  to 
prolong  the  existence  of  one  who  had  outlived  his 
usefulness,  and  thus  have  provided  a  market  for 
essential  utilities. 

If  the  one  thousand  dollars  were  paid  to  an  art 
dealer,  it  contributed  to  the  return  from  his  busi- 
ness which  supported  himself  and  his  family,  and 
enabled  him  to  purchase  other  pictures;  that  is, 
to  replace  the  utility  which  was  sold.  The  results 
of  past  effort  contributed  to  the  demand  for  the 
work  of  painters,  to  the  maintenance  of  the  art- 


THE  FLOW  OF  DEBITS  AND  CREDITS     219 

rooms  where  their  pictures  would  come  to  the  eye 
of  prospective  purchasers.  Pictures  would  not 
be  purchased  except  by  those  whose  demand  for 
essential  utilities  had  been  supplied. 

If  the  one  thousand  dollars  were  received  by  one 
who  no  longer  desired  the  painting,  and  were  in- 
vested by  him  in  shares  of  stock  in  a  corporation, 
would  not  the  effect  upon  the  flow  of  debits  and 
credits  be  the  same  as  though  the  purchaser  had 
made  that  investment  himself?  In  either  event, 
credit  derived  from  the  production  and  sale  of 
utilities  in  the  past  would  have  been  transmuted 
into  the  debits  incurred  in  the  purchase  of  the 
shares  of  stock.  In  either  event,  the  seller  of  the 
shares  of  stock  would  have  received  the  one  thou- 
sand dollars.  The  effect  upon  the  further  produc- 
tion of  utilities  would  depend  upon  the  disposition 
made  by  him  of  that  credit.  If  the  seller  of  the 
picture,  or  of  the  shares  of  stock,  invested  the 
one  thousand  dollars  in  extending  business  opera- 
tions, or  in  a  new  business  organization,  the  results 
of  past  efforts  exchanged  for  the  picture  would 
contribute  to  the  production  of  future  utilities  for 
which  there  might  or  might  not  be  a  compensatory 
demand. 

In  the  actual  progress  of  the  human  race  the 
tendency  has  been  toward  the  transmutation  of 
credits  into  debits  that  result  in  the  augmentation 
of  credits.    This  tendency  has  been  conspicuous 


220  THE  FLOW  OF  VALUE 

throughout  the  era  between  the  introduction  of 
steam  and  the  beginning  of  the  World  War.  That 
progress  has  been  interrupted  and  retarded  by 
the  weaknesses  of  human  nature — by  what  we 
designate  as  folly,  ignorance,  stupidity,  greed,  and 
vice.  It  has  been  interrupted  and  retarded  by 
famine,  disease,  conflagration,  and  seismic  dis- 
turbance. It  has  been  interrupted  and  retarded 
by  war.  These  causes  have  impaired  the  working 
of  the  principles  disclosed  by  the  analysis  of  the 
preceding  chapters. 

There  has  been  despoliation  by  theft,  and  there 
has  been  despoliation  through  subtler  processes 
within  the  law.  Bargaining  has  not  always  re- 
sulted in  mutual  benefit  to  buyer  and  seller.  The 
more  astute,  the  crafty,  and  the  unscrupulous  have 
ever  sought  to  obtain  undue  advantage,  and  often 
have  succeeded.  Therefore,  it  is  not  true  that  the 
lowest  price  for  which  a  utility  could  be  obtained 
has  always  been  the  lowest  price  paid  for  it;  and 
it  has  not  always  been  that  equal  wages  have  been 
paid  for  effort  of  equal  effectiveness.  The  lack  of 
perception  that  the  greatest  benefit  to  all  persons 
is  secured  by  the  production  of  the  largest  volume 
of  utilities  in  relation  to  the  number  of  persons 
engaged  has  seriously  impeded  material  progress. 
There  has  been  organized  and  widespread  effort 
to  limit  the  productivity  of  wage-earners,  to  pre- 
vent the  more  efiicient  from  contributing  to  pro- 
duction in  greater  degree  than  the  less  efficient. 


THE  FLOW  OF  DEBITS  AND  CREDITS      221 

It  has  not  been  true  that  final  utilities  have  always 
contributed  to  the  maintenance  of  that  vitality 
which  finds  expression  in  the  most  effective  pro- 
duction of  which  the  individual  is  capable.  On  the 
contrary,  the  demand  for  many  kinds  of  stimu- 
lants and  other  deleterious  utilities  has  resulted 
in  the  impairment  of  the  efforts  of  their  purchas- 
ers. Debits  incurred  in  their  purchase  have  been 
converted  into  credits  to  their  producers,  but  these 
debits  have  weakened  the  ability  of  the  purchasers 
to  obtain  further  credits. 

The  current  of  debits  and  credits  toward  a  con- 
tinual augmentation  of  credits  in  relation  to  the 
population  has  been  seriously  impaired  by  over- 
production and  underproduction.  If  the  produc- 
tion of  a  given  utility  so  increases  that  prices  can 
not  be  obtained  which  bring  the  total  of  credits 
that  enables  producers  to  continue  in  its  produc- 
tion, there  has  been  overproduction  of  that  utility. 
Obversely,  if  the  supply  of  a  given  utility  be  less 
than  the  volume  for  which  credits  could  be  ob- 
tained sufficient  to  enlist  the  effort  required  in 
the  production  of  that  volume,  there  has  been 
underproduction  of  that  utility.  When  there  has 
been  underproduction,  there  has  been  unemploy- 
ment or  else  a  deficient  application  of  effort  in  the 
production  of  certain  utilities,  and  an  excessive 
application  in  the  production  of  others.  Thus  the 
underproduction  of  certain  utilities  is  often,  if  not 
always,  coincident  and  correlative  with  the  over- 


222  THE  FLOW  OF  VALUE 

production  of  others.  Overproduction  means  that 
the  credits  converted  into  the  debits  incurred  in 
production  have  been  annihilated  in  that  they  have 
not  given  rise  to  equivalent  credits. 

The  remedy  for  these  defects  would  seem  to  lie 
in  the  diffusion  of  intelligence,  of  knowledge,  and 
of  that  which  we  designate  as  honesty.  Probably 
there  is  no  more  efficacious  antidote  for  dishonesty 
than  the  knowledge  which  leads  to  the  perception 
that  each  obtains  the  greatest  benefit  for  himself  in 
putting  forth  his  efforts  toward  the  greatest  ben- 
efit of  others,  and  the  intelligence  which  leads  to 
his  obtaining  in  return  payment  at  least  as  high  as 
would  have  to  be  accorded  another  for  efforts  of 
equal  effectiveness.  The  diffusion  of  the  percep- 
tion that  a  man  ought  to  contribute  to  the  utmost 
of  his  capacity  to  the  benefit  of  others  tends  to 
the  elimination  of  indulgence  in  deleterious  utili- 
ties. 

Overproduction  also  has  its  roots  in  ignorance, 
which  can  only  be  corrected  by  the  wider  knowl- 
edge which  would  lead  to  the  better  estimate  of 
the  demand  for  utilities  of  the  various  kinds,  and 
to  the  better  adjustment  of  the  application  of  ef- 
fort in  their  production.  This  will  be  possible 
only  through  a  wider  coordination  of  the  various 
processes  of  production  than  could  be  attained 
under  the  era  of  unrestrained  competition,  when 
each  producer  adhered  to  secrecy  and  strove  en- 
tirely for  immediate  gain.    Such  shortsightedness 


THE  FLOW  OF  DEBITS  AND  CREDITS     223 

on  the  part  of  many  competitors  is  certain  to  re- 
sult in  overreaching,  which  leads  to  loss  by  all. 

Through  that  coordination  which  finds  expres- 
sion in  insurance  is  mitigated  the  baleful  effect  of 
the  destruction  of  credits  due  to  seismic  disturb- 
ance and  conflagration.  Portions  of  the  credits 
in  the  possession  of  various  persons  are  combined 
in  a  total  of  credit  which  may  be  invested  in  the 
attainment  of  profit  or  interest.  From  the  total  of 
credit  thus  obtained  and  the  profit  accruing  from 
its  utilization  the  insurer  is  reimbursed  for  his 
losses.  Thus,  when  from  such  causes  the  wide- 
spread destruction  of  credits  ensues,  there  is  a 
diminution  of  the  aggregate  of  credit  in  existence, 
but  the  loss  does  not  fall  in  its  entirety  upon  the 
insured  whose  property  has  been  destroyed. 

It  is  obvious  that  the  greater  the  proportion  of 
the  population  not  engaged  in  the  production  of 
utilities,  the  greater  is  the  number  who  must  be 
supported  by  those  who  are  so  engaged.  In  time 
of  war  there  is  a  decrease  in  the  number  of  those 
who  put  forth  effort  in  production,  with  the 
result  that  those  not  under  arms  must  produce 
the  utilities  that  maintain  the  existence  of  those 
who  are  immediately  engaged  in  warfare,  as  well 
as  of  those  who  are  not.  Moreover,  their  effort 
must  be  applied  not  only  in  the  production  of  the 
utilities  that  sustain  the  vitality  of  combatants  and 
noncombatants,  but  in  the  production  of  imple- 


2^4  THE  FLOW  OF  VALUE 

ments  and  munitions  of  war.  For  the  debits  in- 
curred in  the  production  of  implements  and  muni- 
tions of  war  no  credits  are  received  by  their  pur- 
chasers. The  debits  incurred  in  the  production  of 
utilities  for  the  use  of  men  under  arms  maintain 
vitality  from  which  emanates  effort  applied  dur- 
ing the  conflict  in  destroying,  not  in  producing, 
credits.  The  debits  incurred  in  the  production  of 
utilities  for  the  consumption  of  the  men  who  are 
killed  bring  no  offsetting  credits.  Lives  from 
which  there  might  have  been  the  continual  emana- 
tion of  productive  effort  are  brought  to  a  close. 

The  war  that  began  in  1914  had  not  been  in  prog- 
ress many  months  before  the  United  States  was 
called  upon  for  vast  supplies  of  food,  clothing, 
arms,  and  munitions  for  the  Allies.  The  effort  of 
men  was  needed  as  never  before ;  sources  of  sub- 
stance and  instruments  of  production  were 
strained  as  never  before.  Payment  was  made 
from  the  accumulated  resources  of  the  Allies; 
stocks  and  bonds  entitling  their  citizens  to  par- 
ticipation in  the  profit  attained  by  industrial  and 
commercial  organizations  in  the  United  States 
were  pledged  for  the  credits  against  which  they  in- 
curred debits  for  their  supplies.  Thus  credits  ob- 
tained from  past  production  were  expended  for  the 
production  of  utilities  that  would  not  be  utilized 
in  producing  credits  but  would  be  destroyed.  To 
obtain  further  credits,  the  Allied  nations  borrowed 
not  only  of  the  credits  of  their  own  people  but  also 


THE  FLOW  OF  DEBITS  AND  CREDITS     225 

of  the  government  and  the  people  of  the  United 
States,  thus  pledging  credits  to  be  obtained  from 
the  production  in  the  future. 

The  rising  demand  brought  high  prices.  The 
farmers  of  the  United  States  obtained  extraordi- 
nary prices  for  their  crops;  workmen  obtained 
hig'h  wages,  and  those  responsible  for  production 
high  profit.  Abounding  prosperity  came  to  the 
United  States  because  the  efforts  of  a  great  pro- 
portion of  the  population  were  being  put  forth  in 
the  production  of  that  which  the  Allies  must  have 
at  any  price.  There  came  an  extraordinary  de- 
mand for  food  for  the  belligerents  and  for  the  sub> 
stances  transformable  into  powder,  into  projec^ 
tiles,  into  rifles,  into  ordnance,  into  shoes  and  cloth- 
ing for  the  use  of  their  soldiers.  To  secure  the 
workmen  requisite  to  the  increased  production, 
factories  offered  higher  wages  that  would  attract 
them  from  other  employment.  Thus  many  thou- 
sands of  men  received  a  greater  number  of  dollars 
as  wages.  Manufacturers  were  obliged  to  pay  a 
greater  number  of  dollars  for  steel,  copper,  cotton, 
wool,  and  for  coal,  the  primary  essential  of  all 
manufacturing.  The  operators  of  mines  had  to 
pay  a  great  number  of  dollars  as  wages,  a  greater 
number  of  dollars  had  to  be  paid  for  cotton  and 
for  wool.  The  increasing  export  of  foodstuffs 
compelled  the  payment  to  the  farmers  of  a  greater 
number  of  dollars  for  grain,  for  meat.  A  greater 
number  of  dollars  were  paid  for  automobiles,  for 


226  THE  FLOW  OF  VALUE 

horses  and  mules.  Debits  incurred  by  manufac- 
turers and  exporters  were  compensated  by  credits 
rising  from  payment  by  the  Allies.  But  the  debits 
incurred  by  the  Allies  were  not  for  purchases  to  be 
utilized  in  the  production  of  utilities  that  would 
result  in  further  credits.  They  were  for  utilities 
to  be  used  in  the  killing  of  men  by  men  who  them- 
selves were  killed.  Their  credits  were  being  an- 
nihilated. 

The  credits  obtained  by  the  manufacturers  and 
exporters  of  the  United  States,  and  diffused  by 
them,  placed  dollars  in  greater  number  to  the 
credit  of  miners,  farmers,  and  wage-earners  in 
many  vocations,  enabling  them  to  obtain  final  utili- 
ties in  greater  volume  and  variety  than  ever  be- 
fore. Those  not  engaged  in  the  production  of 
utilities  for  the  combatants  and  whose  credits  did 
not  increase,  found  their  command  over  utilities 
diminishing.  As  they  were  obliged  to  pay  more 
for  the  essential  utilities,  they  were  compelled  to 
restrict  their  purchases  of  the  less  essential. 

Then  the  United  States  entered  the  war.  Our 
armies  were  recruited  from  the  young  and  vigor- 
ous, many  of  whom  had  not  entered  upon  the  pro- 
ductive exercise  of  their  effort.  In  great  propor- 
tion, however,  they  were  from  the  productive 
ranks.  These,  together  with  the  vast  number  of 
the  subjects  of  foreign  nations  who  had  returned 
at  the  beginning  of  the  war  to  join  the  armies  of 
the  countries  to  which  they  owed  allegiance,  caused 


THE  FLOW  OF  DEBITS  AND  CREDITS     227 

a  tremendous  decrease  in  the  productive  effort  of 
the  United  States.  This  was  coincident  with  a 
tremendous  increase  in  the  demand  for  human 
effort  in  providing  supplies,  not  only  for  the 
armies  of  the  Allies  but  for  the  armies  of  the 
United  States,  in  constructing  camps,  in  transpor- 
tation by  rail,  and  in  constructing  ships.  As  the 
energies  of  thousands  of  men  were  withdrawn 
from  that  production  which  would  give  rise  to 
credits,  there  were  required  the  efforts  of  the 
smaller  population  that  remained  to  supply  not 
only  its  wants  but  the  wants  of  all  immediately 
engaged  in  the  war. 

The  Government  of  the  United  States  became 
the  greatest  purchaser  of  the  utilities  produced  in 
the  United  States.  Credits  to  offset  the  debits 
incurred  by  the  producers  of  these  utilities  were 
supplied  by  the  government.  With  exceptions 
that  were  negligible  before  the  war,  the  govern- 
ment does  not  engage  in  the  production  of  utili- 
ties for  sale.  Its  utilization  of  credits  in  the 
main  is  in  providing  that  security  of  person 
and  of  property  which  enables  the  citizen  to  con- 
tinue in  production,  in  buying  and  selling.  It 
does  not  transmute  debits  into  credits.  The 
credits  utilized  for  governmental  expenditures  are 
drawn  from  the  credits  of  the  citizens  by  taxation. 
When  a  citizen  of  the  United  States  pays  taxes, 
he  incurs  a  debit  for  which  he  expects  no  corre- 
sponding  credit.    The   government   may   obtain 


228  THE  FLOW  OF  VALUE 

credits  by  taxation  or  by  the  sale  of  bonds.  Gov- 
ernment bonds  are  the  evidence  of  credit  borrowed 
by  the  government,  the  interest  on  which  it  pays 
and  the  principal  of  which  it  pays  by  taxation. 
Immediate  taxation,  therefore,  is  the  preemption 
of  credits  at  the  time  in  the  possession  of  its  citi- 
zens which  have  accrued  from  past  production. 
For  the  debits  to  its  citizens  arising  from  their 
transfer  of  credits  to  the  government  in  payment 
of  taxes,  the  government  renders  no  credits  in 
return  excepting  the  protection  of  their  persons 
and  their  property.  For  the  debits  to  its  citizens 
arising  from  their  transfer  of  credits  in  payment 
for  bonds,  the  government  renders  such  protec- 
tion in  return,  and  also  interest  obtained  through 
the  preemption  of  future  credits  by  means  of  taxa- 
tion. 

Loans  obtained  by  the  sale  of  bonds  are  drafts 
upon  credits  from  the  past  production  of  its  citi- 
zens in  return  for  which  it  pledges  credits  to  be 
obtained  from  taxes  on  their  future  production. 
If  bonds  are  sold  to  part  of  its  citizens,  credits  are 
obtained  from  the  future  production  of  all  of  the 
citizens  in  order  to  pay  interest  and  principal  to 
part  of  the  citizens.  If  bonds  are  sold  to  all  of 
its  citizens,  credits  are  obtained  from  the  future 
production  of  all  of  the  citizens  to  pay  all  of  the 
citizens. 

Whether  the  credits  secured  by  the  government 
are  obtained  by  taxes  or  by  bonds,  the  effect  is  to 


THE  FLOW  OF  DEBITS  AND  CREDITS     229 

withdraw  from  the  credits  of  its  citizens  a  portion 
that  might  otherwise  be  utilized  by  them  in  the 
continued  production,  the  continued  buying  and 
selling,  which  continues  the  chain  of  credits  and 
debits,  and,  other  things  equal,  augments  the  ag- 
gregate of  credits.  These  credits  diffused  by  the 
government  in  providing  equipment  for  its  sol- 
diers and  the  arms  and  munitions  of  war  cause 
debits  to  the  government  and  credits  to  the  manu- 
facturers. Debits  accrue  to  the  manufacturers  as 
they  pay  wages  and  buy  substance.  So  long  as 
this  production  continues,  so  long  will  the  credits 
of  the  government  thus  expended  be  withdrawn 
from  the  credits  of  all  of  its  citizens. 

As  war  continues,  a  greater  proportion  of  the 
population  is  placed  under  arms.  In  increasing 
degree  the  effort  of  the  remaining  population  must 
be  devoted  to  the  support  of  the  army,  and  the  less 
is  the  proportion  of  its  effort  which  can  be  devoted 
to  meeting  its  own  wants.  More  of  foodstuffs  and 
clothing  stuffs  are  required  for  the  soldiers,  more 
of  the  ores  in  the  production  of  arms  and  muni- 
tions. A  greater  proportion  of  the  facilities  for 
transportation  are  required  for  the  conveyance  of 
the  substances  to  be  transformed,  of  the  coal  util- 
ized in  their  transformation,  of  the  utilities  that 
are  produced,  and  for  the  conveyance  of  the 
troops.  Obviously,  there  will  be  a  diminishing 
volume  of  utilities  for  the  use  and  consumption  of 
the  population  not  at  war.    As  their  credits  are 


230  THE  FLOW  OF  VALUE 

drawn  by  taxation,  governmental  borrowing,  and 
subscriptions  to  the  organizations  of  beneficent 
ministration  to  the  combatants,  they  will  have  the 
less  wherewith  to  pay  for  these  utilities.  If  under 
the  working  of  supply  and  demand  in  times  of 
peace  prices  rise  as  supply  diminishes,  that  effect 
is  the  more  pronounced  because  of  the  extraor- 
dinary demand  due  to  the  war,  and  increasingly 
large  numbers  of  the  population  will  be  obliged  to 
dispense  with  nonessential  utilities,  so  that  the 
effort  devoted  to  their  production  will  diminish. 
Moreover,  as  rising  prices  mean  smaller  measures 
of  utilities  to  the  dollar,  the  dollars  paid  by  the 
government  for  equipment,  arms,  and  munitions, 
in  so  far  as  they  have  been  derived  from  borrow- 
ing, will  have  to  be  repaid  by  taxation  in  the  future 
derived  from  credits  when  prices  may  have  fallen ; 
that  is,  when  larger  measures  of  utilities  may  have 
to  be  sold  for  the  dollar. 

When  a  once  prosperous  nation  has  been  so  re- 
duced that  its  efforts  can  produce  no  more  than 
the  essential  utilities  which  suffice  for  immediate 
needs,  it  reverts  to  a  lower  stage  of  civilization. 
Works  of  art  that  were  beyond  price,  because  they 
would  not  be  sold  for  any  price,  become  without 
price,  because  no  price  can  be  obtained  for  them. 

After  desolation  such  as  may  be  caused  by  war, 
pestilence,  or  famine,  the  capacity  of  a  people  to 
resume  production  depends  upon  the  mental  and 
physical  effort  that  can  be  put  forth  by  those  who 


THE  FLOW  OF  DEBITS  AND  CREDITS     231 

are  left.  If  sources  of  substance  and  instruments 
of  production  have  not  been  radically  damaged, 
and  there  remain  many  capable  of  putting  forth 
the  requisite  mental  and  physical  effort,  produc- 
tion may  not  only  be  resumed  but  may  be  stimu- 
lated because  of  a  desire  to  restore  the  ravages. 
If  instruments  of  production  have  been  damaged 
or  even  destroyed,  they  can  be  rebuilt  if  there  is 
that  frugality  in  individual  use  and  consumption 
which  leaves  a  large  proportion  of  effort  available 
for  their  replacement.  Whether  or  not  sources 
of  substance  and  instruments  of  production  have 
been  damaged  or  destroyed,  if  the  brain  and  brawn 
of  the  population  has  been  exhausted,  that  brain 
and  brawn  will  have  to  be  renewed  before  there 
can  be  that  resumption  of  production,  of  buying 
and  selling  that  strengthens  the  chain  of  debits 
and  credits  without  which  there  is  no  material 
progress. 


XVI 

VALUE 

Conspicuous  among  the  words  to  which  so  many 
meanings  have  become  attached  that  their  use  has 
given  rise  to  serious  confusion,  is  ''value."  In 
order  that  economic  discussion  may  not  be  futile, 
it  is  imperative  that  in  economic  usage  value  have 
one  fixed  and  accepted  significance.  It  is  gener- 
ally agreed  among  economists  that  it  shall  be  used 
in  economic  discussion  in  the  same  sense  as  it  is 
used  in  commerce;  that  is,  in  the  sense  of  ex- 
change. An  economic  utility  is  that  for  which 
price  can  be  obtained.  While  property  is  being 
retained  in  a  utility,  price  is  not  received  for  it, 
but  at  any  time  the  owner  could  receive  price  for  it 
if  he  were  to  sell  it.  Thus  we  arrive  at  the  distinc- 
tion between  price  and  value.  Price  is  that  re- 
ceived for  a  utility  at  the  time  of  sale.  Value  is 
that  which  can  be  obtained  for  a  utility,  that  for 
which  a  utility  can  be  sold.  Thus  every  economic 
utility  has  value. 

That  this  is  the  true  conception  of  value  as  that 
word  must  be  used  in  commerce  is  proved  by  the 
inconceivability  of  the  negative.  If  the  owner 
of  a  utility  will  not  part  with  it  for  any  price  that 

232 


VALUE  233 

any  one  else  will  offer,  the  conception  of  the  owner 
as  to  the  desirability  of  the  thing  for  himself  is 
different  from  the  conception  of  any  other  person 
as  to  its  desirability  for  himself.  The  conception 
of  the  owner  is  his  individual  estimate :  it  is  a  sub- 
jective concept  only.  It  is  obvious  that,  if  every- 
thing in  existence  that  is  under  human  ownership 
were  held  by  its  owner  for  a  price  higher  than  any 
one  would  pay  for  it,  there  would  be  no  buying  and 
selling.  Likewise,  there  could  be  no  buying  and 
selling  of  a  thing  for  which  no  one  will  pay  any 
price  whatever ;  it  is  without  value  in  the  economic 
sense  no  matter  how  highly  its  owner  may  es- 
teem it. 

The  things  and  services  that  are  held  above 
price  are'  exceptional,  but  a  thing  may  be  held  by 
its  owner  for  a  price  higher  than  can  be  obtained 
from  one  person  in  the  hope  that  that  price  will 
be  obtained  from  another ;  or  it  may  be  held  for  a 
price  higher  than  can  be  obtained  at  a  given  time 
in  the  hope  that  that  price  may  be  obtained  at  a 
future  time.  But  this  hoped-for  price  is  an  indi- 
vidual concept  of  the  owner  which  may  or  may  not 
coincide  with  that  of  another. 

If  we  were  to  consider  the  value  of  a  thing  or  a 
service  to  be  the  estimate  of  an  individual  as  what 
he  would  be  willing  to  pay  for  it  or  that  for  which 
he  would  be  willing  to  sell  it,  it  might  have  as  many 
values  as  there  were  individual  estimates.  In  the 
absence  of  any  other  criterion  no  one  of  these  esti- 


2S4!  THE  FLOW  OF  VALUE 

mates  could  have  general  acceptance.  The  value 
of  a  utility,  therefore,  is  an  estimate  in  which 
there  is  concurrence.  The  test  of  concurrence  is 
what  the  buyer  will  pay  and  the  seller  will  accept 
for  it.  That  which  will  be  received  and  paid  for  a 
utility  at  a  given  time  and  place  may  be  different 
from  that  which  will  be  received  and  paid  for  it  at 
another  time  and  place.  Therefore,  the  value  of  a 
specified  utility  can  never  definitely  be  fixed  once 
and  for  all ;  there  can  be  no  designation  of  its  value 
except  under  limitations  as  to  time  and  place. 

It  is  the  characteristics  that  adapt  a  utility  to 
meet  a  want  that  constitute  it  a  utility,  but  the 
value  of  a  utility  does  not  depend  upon  the  extent 
to  which  it  meets  a  want  nor  upon  the  degree  of 
its  usefulness.  Of  things  exactly  alike,  owned  re- 
spectively by  different  persons,  each  may  be  of  a 
different  degree  of  serviceableness  to  its  owner, 
notwithstanding  that  for  either  has  been  paid  the 
same  price  as  for  the  other,  and  that  for  either 
may  be  obtained  the  same  price  as  for  the  other. 

It  is  what  can  be  obtained  for  a  utility  that  gives 
it  value.  A  utility,  whatever  its  nature,  is  of 
value  because  price  can  be  obtained  for  it.  With 
the  price  obtained,  utilities  can  be  purchased. 
Thus  price  is  command  over  utilities.  Therefore, 
a  utility  for  which  price  can  be  obtained  is  com- 
mand over  utilities,  even  though  it  may  not  be  im- 
mediately utilizable  command  over  utilities. 
Thereforci  command  over  utilities  is  value,  and 


VALUE  235 

value  is  command  over  utilities.  Thus  value  is 
immediately  utilizable  credits,  or  that  in  which 
there  is  property  for  which  immediately  utiliz- 
able credits  may  be  obtained.  As  price  can  be 
obtained  for  any  economic  utility,  any  utility 
gives  command  over  other  utilities.  Therefore, 
apart  from  its  nature,  we  may  designate  a  util- 
ity not  only  as  *'of  value"  or  *' having  value" 
but  as  value,  because  value  is  the  attribute  that 
leads  to  its  being  bought  and  sold.  Value  is  fre- 
quently used  in  this  sense  in  business  parlance. 
The  elision  is  justifiable  especially  as  it  serves 
convenience.  Therefore,  as  the  possession  of  a 
utility  is  the  possession  of  command  over  utilities, 
the  possession  of  a  utility  is  the  possession  of 
value. 

All  utilities,  therefore,  are  value ;  that  is,  what- 
soever in  which  there  is  property  and  for  which  a 
price  may  be  obtained  is  value.  Inasmuch  as 
value  is  command  over  utilities,  human  effort  put 
forth  in  production  is  value.  All  final  utilities  are 
value;  lands  used  for  residence,  dwellings  and 
their  appurtenances  are  value;  lands,  mines,  for- 
ests, and  waters  used  as  sources  of  substance  are 
value ;  instruments  of  production,  including  mills, 
factories,  railroads,  steamships,  all  machines  and 
appliances,  wholesale  stores  and  retail  stores, 
are  value.  Coin,  bank  notes,  government  notes, 
and  credit  entries  on  the  books  of  banks  are 
value. 


236  THE  FLOW  OF  VALUE 

While  value  is  a  constant  attribute  of  a  utility, 
the  degree  of  its  value  is  variable.  At  the  time  of 
sale  the  degree  of  value  is  definitely  determined  by 
price ;  at  other  times  it  is  determined  by  the  price 
that  could  be  obtained  if  there  were  sale.  While 
value  is  the  attribute  in  general  that  causes  it  to 
be  bought  and  sold,  the  degree  of  its  value  is  its 
value.  As  the  degree  of  its  value  changes  from 
time  to  time,  its  value  changes  from  time  to  time. 
As  the  price  of  a  utility  is  determined  by  various 
interrelations  between  the  supply  of  and  the  de- 
mand for  utilities,  so  also  is  the  value  of  a  utility 
determined  by  various  interrelations  between  the 
supply  of  and  the  demand  for  utilities.  The  price 
obtained  for  a  utility  at  a  forced  sale  often  is  said 
to  be  less  than  its  value.  This  means  that  the  sale 
has  been  under  conditions  that  have  caused  a  vari- 
ation in  these  interrelations  that  is  only  tempor- 
ary; that  if  property  in  such  a  utility  could  have 
been  retained  until  these  conditions  were  no  longer 
•  effective,  a  higher  price  could  be  obtained  for  it. 

Although  the  value  of  a  utility  is  not  determined 
by  the  degree  of  its  usefulness,  it  would  not  be  pur- 
chased unless  it  were  useful.  Utilities  are  bought 
and  sold  because  they  meet  individual  wants,  or 
because  they  can  be  utilized  toward  the  production 
of  final  utilities  that  meet  individual  wants.  The 
value  of  final  utilities  is  whatever  can  be  obtained 
for  them,  and  this  is  determined  by  the  interrela- 
tions between  the  supply  of  and  the  demand  for 


VALUE  237 

final  utilities.  The  value  of  utilities  utilized  in 
the  production  of  other  utilities  is  whatever  can 
be  obtained  for  them,  and  this  is  determined  by 
what  can  be  obtained  for  the  utilities  produced  by 
means  of  their  utilization.  A  utility  is  purchased 
because  of  its  usefulness  in  the  future,  perhaps  at 
a  time  immediately  subsequent  to  its  purchase,  or 
at  a  time  more  or  less  remote,  or  perhaps  for  util- 
ization throughout  a  continuing  period. 

Its  utilization  depends  upon  the  application  of 
human  effort  directed  by  human  intelligence. 
Therefore,  that  which  underlies  value  is  the  brain 
of  man.  As  a  man  puts  forth  effort  in  production, 
he  emanates  value ;  that  is,  his  effort  in  producing 
utilities  brings  him  command  over  utilities.  As 
he  uses  and  consumes  food  and  clothing,  he  ab- 
sorbs value ;  as  he  uses  a  dwelling  and  its  appur- 
tenances, he  absorbs  value.  As  he  acquires  prop- 
erty in  sources  of  substance  or  instruments  of  pro- 
duction, he  acquires  value ;  and  as  he  directs  their 
utilization  in  the  production  of  utilities,  he  pro- 
duces value. 

Therefore  it  is  that  utility  and  value  are  desig- 
nations that  signify  the  serviceability  of  man  unto 
man.  As  the  first  step  in  the  production  of  a  util- 
ity is  the  expenditure  of  human  effort,  the  first 
step  in  the  attainment  of  value  is  the  expenditure 
of  human  effort.  As  the  continued  attainment  of 
utilities  is  through  the  continued  exertion  of  effort, 
whether  in  production  or  in  buying  and  selling, 


238  THE  FLOW  OF  VALUE 

the  continued  attainment  of  value  is  through  the 
continued  exertion  of  effort. 

As  human  effort  is  put  forth  in  exchange  for 
utilities,  the  possession  of  utilities  is  command 
over  human  effort ;  thus  the  possession  of  value  is 
command  over  human  effort.  The  degree  in 
which  a  man  possesses  value  is  the  degree  in 
which  he  can  command  human  effort  in  produc- 
tion, or  the  results  of  human  effort  that  have 
been  produced. 

The  transfer  of  value  is  the  transfer  of  prop- 
erty in  the  result  of  human  effort.  In  that  the 
value  of  a  utility  is  what  can  be  obtained  for  it,  its 
value  is  not  determined  by  what  the  owner  has 
paid  for  it,  nor  by  what  it  has  cost  to  produce  it. 
Ordinarily  he  will  not  sell  it  for  less  than  it  has 
cost,  but  when  he  does  sell  it  he  obtains  the  most 
that  he  can.  This  may  be  more  or  it  may  be  less 
than  its  cost. 

As  the  dollar  is  the  measure  of  price,  so  also  it 
is  the  measure  of  value.  Or  rather,  as  there  is  no 
price  unless  a  utility  is  bought  and  sold,  the  dollar 
is  the  symbol  of  the  value  of  a  utility  that  is  not  in 
process  of  being  bought  and  sold.  On  the  books 
of  a  business  organization,  sources  of  substance 
and  instruments  of  production  may  continuously 
be  indicated  as  having  the  value  of  a  certain  num- 
ber of  dollars.  That  amount  is  a  symbol  of  value. 
It  may  be  what  they  have  cost ;  it  may  be  exactly 
what  could  be  obtained  for  them  if  they  were  sold ; 


VALUE  239 

it  may  be  greater  or  less  than  that  which  could  be 
obtained  for  them. 

In  the  production  of  final  utilities  debits  have 
been  incurred  as  substance  was  purchased,  wages 
paid,  and  other  expenditures  made  in  the  proc- 
esses of  their  production.  The  total  of  the  debits 
is  the  total  of  the  cost  of  their  production.  But 
this  is  not  the  value  of  the  utilities  produced. 
Their  value  is  what  can  be  obtained  for  them. 
This  may  be  greater  or  less  than  their  cost.  When 
they  are  sold  the  price  obtained  is  their  value. 

It  is  but  seldom  that  a  large  organization,  such 
as  a  modern  corporation,  is  sold  in  its  entirety. 
The  capital  stock  certifying  to  ownership  in  it  is 
divided  often  into  hundreds  and  even  into  thou- 
sands of  shares.  These  shares  may  be  bought  and 
sold  in  any  number  for  which  there  may  be  buyers 
and  sellers.  In  the  case  of  many  corporations, 
shares  are  continually  being  bought  and  sold,  and 
thus  the  ownership  of  the  corporations,  in  part,  is 
continually  undergoing  change.  Such  an  organi- 
zation is  of  no  benefit  to  any  one  unless  it  is  utilized 
in  the  production  of  utilities.  If  it  be  sold  out- 
right, the  purchasers  may  buy  it  for  the  purpose 
of  selling  it  again,  but  as  a  rule  it  will  pass  into 
the  possession  of  those  who  will  utilize  it  in  pro- 
duction. The  price  that  will  be  paid  will  be  deter- 
mined nearly  always  not  by  what  purchasers  think 
they  can  obtain  for  such  an  organization  in  its 
entirety,  but  by  what  they  think  they  can  obtain 


240  THE  FLOW  OF  VALUE 

by  means  of  its  utilization ;  that  is,  by  the  profit 
they  believe  they  can  obtain  upon  the  investment 
by  means  of  its  utilization.  Those  who  buy  shares 
of  its  capital  stock  may  do  so  in  the  intent  to  sell 
them  at  a  price  higher  than  that  paid,  or  they  may 
retain  them  because  of  the  profit  they  believe  will 
be  obtained  in  dividends. 

When  a  business  organization  has  earned  divi- 
dends for  a  period,  and  gives  prospect  of  continu- 
ing to  earn  them,  the  price  that  its  capital  shares 
will  bring,  and  therefore  their  value,  is  determined 
in  large  measure  by  the  rate  of  dividend.  Divi- 
dends, however,  depend  upon  net  earnings,  and 
these  may  be  utilized  to  build  up  a  surplus  before 
dividends  are  paid.  Therefore  the  lower  the 
rate  of  net  earnings,  the  less  is  the  value  of  a 
share;  the  higher  the  rate  of  net  earnings,  the 
greater  is  the  value  of  a  share.  Those  who  be- 
lieve that  the  prospects  for  a  continuance  of,  or 
an  increase  in,  the  dividends  are  good  will  pay 
a  higher  price  than  those  who  do  not  so  believe. 
The  value  at  a  given  time  of  the  shares  is  the 
price  that  may  be  obtained  for  them  at  that  time, 
or  they  may  be  held  by  their  owners  for  a  higher 
price  at  a  subsequent  time.  Thus  while  utilities 
that  meet  wants,  or  can  be  utilized  toward  meet- 
ing wants,  are  value,  the  degree  of  value  is  not 
inherent  in  that  which  is  bought  and  sold;  it  is 
not  a  concrete  characteristic  of  a  utility.  It  is  a 
mental  concept  of  buyer  and  seller.    It  is  deter- 


VALUE  241 

mined  by  belief  in  what  can  be  obtained  for  a 
utility,  or  what  can  be  obtained  by  means  of  its 
utilization. 

Utilization  consists  in  the  application  of  force 
under  the  direction  of  the  brain  to  the  matter- 
utilities,  the  so-called  physical  assets  in  which  a 
business  organization  has  property.  The  greater 
the  volume  of  utilities  that  can  be  produced  by  the 
application  of  force  to  a  given  volume  of  matter, 
the  larger,  other  things  equal,  the  profit.  There- 
fore, the  more  eflScient  the  application  of  force  to 
the  matter-utilities  constituting  the  physical  as- 
sets of  a  business  organization,  the  greater,  other 
things  equal,  will  be  the  resultant  volume  of  util- 
ities and  the  profit  derived  from  their  sale. 
Therefore,  the  greatest  benefit,  not  only  to  those 
who  have  property  in  the  organization,  but  also 
to  the  whole  people,  will  not  be  obtained  by  re- 
stricting the  return  to  a  certain  ratio  to  a  pre- 
determined and  fixed  so-called  value  of  the  ma- 
terial assets.  This  would  offer  no  inducement  to 
an  increased  efficiency  in  the  application  of  force 
by  means  of  which  a  greater  volume  of  utilities 
could  be  produced,  and  a  greater  ratio  of  return 
be  secured.  Thus  to  restrict  profit  is  to  discour- 
age the  application  of  mental  effort  to  the  greatest 
effect. 

As  value  designates  that  in  which  there  is  prop- 
erty but  which  is  not  in  process  of  being  bought 


«42  THE  FLOW  OF  VALUE 

and  sold,  it  follows  that,  when  families  or  tribes 
lived  in  a  state  of  complete  self-sufficiency,  there 
was  no  value  in  this  sense.  Although  that  in 
which  they  had  property  was  of  use  to  them,  there 
was  no  transfer  of  property,  no  buying  and  selling 
between  one  family  or  tribe  and  another.  It  was 
likewise,  when  a  people  lived  under  despotism: 
the  rule  of  the  despot  was,  in  a  way,  but  an 
extension  of  the  rule  of  the  patriarch.  In  the 
storehouses  of  the  Pharaohs  was  placed  the  yield 
of  their  subjects,  and  it  was  distributed  by 
the  Pharaohs  among  their  subjects. 

There  was  the  germ  of  value  when  the  men  of  a 
family  by  hunting  provided  the  food  which  the 
women  prepared,  for  then  there  was  the  exchange 
of  efforts,  the  exchange  of  the  results  of  effort. 
The  germ  developed  into  the  embryo  when  differ- 
ent members  of  a  family  or  a  tribe  produced  dif- 
ferent things  which  served  the  wants  of  members 
other  than  those  who  produced  them.  There 
was  an  advance  in  the  embryonic  development  of 
value  when  the  Pharaoh  stored  the  grain  which 
provided  his  subjects  with  food  from  one  harvest 
to  another.  Their  efforts  were  at  his  command 
not  only  for  providing  the  utilities  which  minis- 
tered to  existence,  but  also  for  protecting  him 
against  the  enemy,  for  both  aggressive  and  defen- 
sive warfare.  In  protecting  him  they  protected 
themselves:  at  all  times  the  subjects  of  a  despot 
received  a  certain  measure  of  protection  because 


VALUE  243 

of  the  power  of  the  despot,  whether  he  was  a 
beneficent  ruler  or  a  grinding  tyrant. 

In  the  era  of  despotic  rule  lands  were  acquired 
by  conquest  and  held  by  might.  When  the  sub- 
jects of  the  medieval  rulers  progressed  to  the  ex- 
change of  things  for  money  value  in  the  economic 
sense  emerged.  When  they  purchased  lands  from 
the  rulers,  lands  became  value.  To  the  early 
colonists  on  the  western  shores  of  the  Atlantic, 
lands  were  accorded  by  royal  charter  and  later  by 
governmental  grant.  When  the  settlers  so  pro- 
gressed out  of  self-sufficiency  that  lands  were 
utilized  in  the  production  of  utilities  for  which 
price  was  obtained,  the  lands  were  value  because 
price  could  be  obtained  for  them  from  those  who 
desired  to  utilize  them.  Or  when  lands,  mines, 
and  forests  had  the  potentiality  of  utilization  in 
such  production,  they  became  value. 

As,  through  the  specialization  of  effort  and  the 
progress  of  invention  and  discovery,  utilities  were 
produced  by  decreasing  portions  of  the  popula- 
tion, there  was  liberated  effort  that  was  devoted 
to  the  provision  of  structures,  machines,  and  ap- 
pliances that  were  utilized  in  continuing  produc- 
tion. Thus  there  was  the  multiplication  of  value. 
As  substance  was  gathered  in  larger  quantities 
and  transformed  into  utilities  in  greater  volume, 
there  was  the  multiplication  of  value.  Value  ob- 
viously multiplies  as  there  is  the  accumulation  of 
a  surplus  of  utilities  over  those  which  enter  into 


244  THE  FLOW  OF  VALUE 

individual  consumption.  Value,  therefore,  multi- 
plies as  accumulation  exceeds  consumption. 
There  could  not  be  the  accumulation  of  value  un- 
less that  consumed  is  replaced  by  value  in  greater 
volume.  The  accumulation  of  value  in  the  form 
of  available  human  effort  means  not  only  increase 
in  the  numbers  of  the  population,  but  increase  in 
the  effectiveness  of  individuals  constituting  the 
population. 

It  is  those  most  effective  in  production,  in  buy- 
ing and  selling,  who  accumulate  more  than  they 
spend,  who  continue  to  accumulate  value.  They 
continue  to  acquire  that  increasing  command  over 
human  effort  which,  when  effectively  directed, 
ever  tends  to  produce  more  than  it  consumes. 
The  accumulation  of  value  is  thus  not  alone  by 
those  who  spend  less  for  individual  consumption 
than  they  receive  for  putting  forth  individual  ef- 
fort, but  by  those  who  obtain  for  the  results  of 
others  more  than  is  required  to  enlist  those  ef- 
forts. If  a  man  engaged  in  production  continu- 
ously obtain  profit,  a  considerable  proportion  of 
which  he  devotes  to  effective  production,  buying 
and  selling,  value  would  tend  to  accumulate  in 
his  possession.  Such  sagacity  and  capacity  have 
been  exercised  by  many  a  man  who,  with  small 
resources,  has  founded  a  business  that  has  grown 
until  its  reputation  is  world-wide.  The  modem 
tendency  is  to  the  incorporation  of  business  or- 
ganizations thus  originally  founded  and  developed 


VALUE  245 

by  personal  initiative.  Purchasers  of  shares  of 
stock  in  a  corporation  not  only  acquire  participa- 
tion in  the  ownership  of  its  material  assets,  but 
also  the  right  to  participate  in  the  return  derived 
through  the  application  of  intelligence  in  the  util- 
ization of  those  assets. 

Value,  other  things  equal,  accumulates  because 
of  an  increase  in  the  aggregate  of  utilities  for 
which  a  greater  number  of  dollars  can  be  obtained. 
As  widening  areas  of  land  are  utilized,  or  are  of 
potential  utilization  in  meeting  a  greater  volume 
of  human  wants  there  is  more  of  land  for  which 
price  can  be  obtained.  As  the  population  in- 
creases, land  immediately  utilized  in  centers  of 
population,  and  land  contiguous  to  such  centers, 
becomes  of  greater  value  because  the  utilization 
results  in  meeting  a  greater  volume  of  wants. 
Land  tends  to  vary  in  value  in  accordance  with  the 
volume  of  the  wants  that  are  met  by  means  of  its 
utilization,  or  the  volume  that  its  potential  utiliza- 
tion is  potentially  efficacious  in  meeting. 

Substance  may  be  of  greater  value  as  its  supply 
increases,  or  as  more  dollars  obtainable  for  a  given 
supply  give  a  greater  command  over  utilities.  A 
stock  of  final  utilities  in  existence  at  a  given  time 
may  be  of  greater  value  than  at  a  preceding  time 
because  the  volume  is  greater,  or  because  for  a 
volume  no  greater  prices  may  be  obtainable  bring- 
ing a  greater  total  of  credits,  giving  a  greater 
command  over  utilities.    Instruments  of  produc- 


U6  THE  FLOW  OF  VALUE 

tion  may  be  of  a  greater  total  of  value  because  of 
the  increase  in  their  number  and  serviceability. 
The  value  of  a  given  instrument  may  increase  be- 
cause of  its  serviceability  in  producing  a  larger 
volume  of  utilities.  Or  it  may  increase  because 
a  rising  demand  for  the  utilities  produced  may 
bring  higher  prices  resulting  in  credits  that  give 
increasing  command  over  utilities. 

An  increase  in  the  value  of  a  given  utility  means 
that  a  higher  price  can  be  obtained  for  it  than 
was  paid  for  it;  that  is,  that  it  can  be  sold  at  a 
profit ;  that  is,  that  the  dollars  obtained  will,  other 
things  equal,  give  command  over  utilities  in 
greater  measure.  A  final  utility  may  thus  in- 
crease in  value;  sources  of  substance,  substance, 
instruments  of  production,  shares  of  stocks  or 
bonds  of  a  business  organization  may  thus  in- 
crease in  value.  Utilities  utilized  in  the  produc- 
tion of  other  utilities,  such  as  sources  of  sub- 
stance and  instruments  of  production,  may  in- 
crease in  value  when  the  profit  obtained  by  means 
of  their  utilization  increases,  or  when  it  is  be- 
lieved that  the  profit  thus  obtained  will  increase. 

Prices  and  profit  obtainable  in  the  future  are 
uncertain,  and,  therefore,  future  value  is  uncer- 
tain. For  example,  when  it  is  said  that  the  value 
of  a  cotton  crop  is  so  many  million  dollars,  or 
that  the  value  of  all  of  the  crops  of  a  given  year  is 
so  many  billion  dollars,  it  is  meant  that  these 


VALUE  247 

amounts  are  the  total  of  the  prices  received  for 
them.  Neither  the  volume  of  the  crops  nor  the 
prices  could  have  been  predicted  with  exactitude, 
and,  therefore,  their  value  could  no  more  than 
approximately  be  determined  in  advance  of  their 
sale. 

As  the  value  of  particular  utilities  may  increase 
or  decrease  as  the  prices  obtainable  give  greater 
or  less  command  over  other  utilities,  there  is  a 
relativity  between  the  value  of  utilities  of  differ- 
ent kinds.  Therefore  changes  in  value  are 
changes  in  the  value  of  particular  utilities. 
When  we  say  that  the  value  of  all  of  the  farms 
of  the  United  States  is  so  many  billion  dollars, 
it  is  implied  that  that  is  what  could  be  obtained 
for  them  if  they  were  sold.  It  is  inconceivable 
that  all  of  the  property  in  the  United  States 
should  be  simultaneously  bought  and  sold;  that 
is,  that  on  a  given  day  there  could  be  the  transfer 
of  property  in  all  utilities.  If  such  a  thing  could 
happen,  existent  utilities  in  certain  proportions 
would  be  exchanged  for  other  existent  utilities  in 
certain  proportions.  After  such  a  conglomerate 
transaction,  there  would  be  in  existence  virtually 
the  same  utilities  as  before,  but  portions  might 
have  passed  into  the  possession  of  those  less 
capable,  and  other  portions  into  the  possession  of 
those  more  capable  of  making  efficient  utilization 
of  them. 


248  THE  FLOW  OF  VALUE 

As  sources  of  substance  yield  substance,  the 
value  of  the  sources,  in  a  measure,  and  the  value 
of  the  effort  applied  to  them,  is  transmuted  into 
the  value  of  the  substance.  When  substance  is 
transformed,  its  value — that  of  the  effort  applied, 
and,  in  a  measure,  the  value  of  the  instruments  of 
production  utilized  in  the  transformation — is 
transmuted  into  the  value  of  intermediate  utili- 
ties, and  ultimately  into  the  value  of  final  utilities. 
As  final  utilities  in  the  form  of  food,  clothing, 
and  shelter  are  used  and  consumed,  their  value  is 
transmuted  into  the  value  of  the  human  effort  that 
emanates  from  the  vitality  maintained.  The 
value  of  human  effort  is  transmuted  again  into  the 
value  of  substance,  of  instruments  of  production, 
and  of  utilities  produced.  Thus  value  is  in  con- 
tinual flow  and  transmutation. 

When  there  is  the  direct  exchange  of  utilities 
for  utilities,  as  of  a  farm  for  a  city  residence,  or 
of  a  mine  for  a  mill,  there  is  a  change  in  the  ma- 
terial assets,  that  is  in  the.  matter-utilities,  to  the 
credit  of  either  party,  but  there  is  no  conversion 
of  credits  into  debits  on  the  books  of  banks.  If, 
however,  for  example,  a  man  with  a  credit  of 
twenty  thousand  dollars  utilize  it  in  the  purchase 
of  a  farm,  credit  obtained  from  the  sale  of  utili- 
ties in  the  past  is  expended  for  the  farm.  As  he 
draws  a  check  for  twenty  thousand  dollars,  an 
entry  is  made  to  his  debit  on  the  books  of  the 
bank,  and  he  acquires  property  in  the  farm.    As 


VALUE  249 

the  former  owner  of  the  farm  has  sold  a  utility  of 
the  value  of  twenty  thousand  dollars,  an  entry  in 
that  amount  is  made  to  his  credit  when  the  check 
is  deposited;  value  represented  by  the  utilities 
sold  by  the  purchaser  of  the  farm  has  been  trans- 
muted into  value  represented  by  the  farm:  the 
farm  is  value.  It  has  passed  to  the  ownership 
of  the  purchaser  who  may  so  utilize  it  in  further 
production  that  its  value  may  increase.  The 
seller  of  the  farm  may  utilize  his  credit  for  twenty 
thousand  dollars  in  the  production  of  utilities  for 
sale — in  the  provision  of  instruments  of  produc- 
tion, in  the  purchase  of  substance,  the  payment  of 
wages.  The  value  at  his  command  will  increase 
if  he  obtain  for  the  utilities  produced  more  than 
sufficient  to  repay  the  costs  of  production.  Thus 
it  is  that  value  may  accumulate  in  the  possession 
of  him  who  buys  and  of  him  who  sells. 

So  far  in  this  discussion  value  has  been  con- 
sidered in  the  strict  commercial  significance  of  the 
credits  obtainable  for  a  utility  which  give  imme- 
diate command  over  utilities.  As,  however,  the 
purpose  of  all  utilities  is  to  minister  to  human 
existence,  value  may  be  accorded  the  broader  sig- 
nificance of  that  which  is  obtained  from  expendi- 
ture in  the  furtherance  of  human  existence,  even 
though  the  return  be  not  expressed  by  credits  in 
the  form  of  tangible  utilities  or  on  the  books  of 
banks.    That  which  widens  the  sphere  of  knowl- 


250  THE  FLOW  OF  VALUE 

edge  may  minister  to  the  fullness  of  human  exist- 
ence, even  though  it  may  not  result  in  the  attain- 
ment of  credits.  Likewise  with  that  which  con- 
tributes to  intellectual  and  moral  elevation. 
When  a  man  who  has  amassed  great  accumulations 
of  credit  through  production,  buying,  and  selling 
at  prices  determined  by  the  interrelations  between 
supply  and  demand,  endows  educational  institu- 
tions, fosters  research,  endows  drama  or  orchestra, 
or  ministers  to  the  fullness  of  the  life  of  many 
thousands  in  ways  which  they  could  not  provide 
for  themselves,  he  is  depriving  no  one.  When 
such  a  person  buys  works  of  art  which  he  keeps  in 
a  private  gallery  during  his  lifetime,  he  is  obtain- 
ing gratification  without  depriving  others.  If  he 
bequeath  his  collection  to  a  public  gallery,  he 
passes  on  to  the  multitude  the  means  for  the  grati- 
fication he  has  attained  himself.  When  such  per- 
sons buy  and  sell  works  of  art  between  themselves, 
there  is  no  deprivation  to  others. 

In  this  broader  significance,  value  is  obtained 
from  expenditure  that  contributes  to  concord  in 
the  family,  in  the  community,  in  the  nation,  and 
among  the  peoples  of  the  nations.  Under  the  full- 
est concord  each  person  has  the  fullest  opportunity 
to  put  forth  his  efforts  toward  the  fullest  achieve- 
ment of  which  he  is  capable,  to  obtain  in  the  high- 
est degree  that  which  ministers  to  the  fullness  of 
his  own  life  in  return  for  his  contribution  to  the 
fullness  of  the  life  of  others.    And  thus  it  may  be 


VALUE  261 

that  the  expenditure  of  effort,  of  the  results  of 
effort,  and  of  life  itself  entailed  by  a  great  war 
may  have  value  if  the  resultant  peace  brings  a 
fuller  concord.  It  has  been  so  with  wars  in  the 
past.  "But  who  shall  so  forecast  the  years,  and 
find  in  loss  a  gain  to  match,  or  reach  a  hand 
through  time  to  catch  the  far-off  interest  of 
tears?'* 


XVII 

CAPITAL 

As  any  person  engages  in  the  buying  or  selling 
of  utilities  of  any  kind,  in  the  utilization  of 
sources  of  substance,  in  the  production  of  sub- 
stance, in  the  transformation  of  substance,  in  the 
production  and  sale  of  final  utilities,  there  is  con- 
tinual transmutation  in  the  value  in  which  he 
has  property.  Therefore,  it  is  necessary  for  each 
person  engaged  in  the  buying  and  selling  of  utili- 
ties, in  the  production  and  sale  of  utilities,  to  keep 
record  of  the  value  in  which  he  has  property,  and 
of  the  transmutations  of  value  for  which  he  is  re- 
sponsible. 

When  there  came  to  be  buying  and  selling  with- 
out immediate  payment,  it  was  necessary  that 
there  be  record  of  that  with  which  the  seller  had 
parted  but  for  which  he  had  not  received  payment. 
The  buyer  might  keep  a  separate  record  of  that 
which  had  come  into  his  possession  but  for  which 
he  had  not  paid,  or  he  might  rely  upon  the  record 
of  the  seller.  As  there  came  to  be  the  transfer  of 
property  in  utilities  from  one  seller  to  many  buy- 
ers, and  one  buyer  purchased  from  many  sellers, 
it  became  necessary  for  each  seller  to  keep  an 
account  with  every  buyer,  and  every  buyer  to 

252 


CAPITAL  253 

keep  an  account  with  each  seller.  Thus  arose 
bookkeeping.  This  at  first  meant  no  more  than 
the  keeping  of  records  in  a  book  of  what  a  man 
owed  to  each  of  various  persons  and  of  what  was 
due  to  him  from  various  persons,  as  distinguished 
from  the  cruder  preceding  methods  of  cutting 
notches  in  a  stick,  or  making  marks  with  chalk. 

Naturally,  as  a  man  to  whom  another  sold  util- 
ities became  indebted  for  them  he  would  be  debited 
by  the  seller  with  their  price.  When  he  paid  for 
them  he  would  be  credited.  For  example,  when 
B  sold  10  bushels  of  potatoes  to  A  at  50  cents 
a  bushel,  he  would  open  an  account  with  A  which 
would  stand : 

A 
Dr.  Cr. 

$5 

A  would  open  an  account  with  B  which  would 
stand : 

B 
Dr.  Cr. 

$5 

If  at  a  subsequent  time  B  bought  5  sacks  of  flour 
from  A  at  $1  a  sack,  or  if  A  paid  to  him  $5  dollars 
in  currency,  A  would  make  entry  to  the  debit  of 
B,  making  the  account  with  him  stand: 

B 
Dr.  Cr. 

$5  $5 


254  THE  FLOW  OF  VALUE 

and  B  would  make  entry  to  the  credit  of  A  making 
his  accomit  with  him  stand: 

A 

Dr.  Cr. 

$5  $5 

Thus  the  account  of  A  with  B  and  the  account  of 
B  with  A  would  be  balanced.  Under  the  supposi- 
tion that  there  then  were  a  bank,  and  A  gave  B 
his  check  for  $5,  there  would  be  entry  on  the 
records  of  the  bank  to  the  debit  of  A  and  tp  the 
credit  of  B  in  the  amount  of  $5. 

As  a  producer  came  to  have  a  stock  of  utilities 
from  which  he  made  sale  from  time  to  time,  he 
would  want  to  know  what  it  cost  to  produce  these 
utilities,  and  whether  this  were  greater  or  less 
than  the  amount  he  received  for  them.  For  ex- 
ample, B  might  want  to  know  what  he  had  ex- 
pended to  obtain  a  given  yield  of  potatoes,  and 
to  contrast  this  with  what  he  had  received  for 
them.  He  would  open  an  account  with  **  Pota- 
toes." If  he  paid  $50  for  feed,  fertilizer,  wages, 
and  other  utilities  utilized  in  the  production,  he 
would  debit  Potatoes  in  that  amount,  making  the 
account  stand: 

Potatoes 

Dr.  Cr. 

$50 

As  he  sold  10  bushels  of  potatoes  to  A,  at  50  cents 
a  bushel,  he  would  not  only  debit  A  but  he  would 
credit  Potatoes,  making  the  account  stand: 


CAPITAL  255 

Potatoes 
Dr.  Cr. 

$50  $5 

A 
Dr.  Cr. 

$5 

When  A  paid  him  a  check  for  $5  and  he  deposited 
that  check  in  a  bank,  he  would  credit  A  and  debit 
the  bank,  making  these  accounts  stand: 


Dr. 

Cr. 

$5 

Bank 

$5 

Dr. 

Cr. 

$5 

He  would  then  have  placed  into  Potatoes  $45  more 
than  he  had  received.  He  would  be  entitled  to 
draw  against  the  credit  to  his  account  on  the  rec- 
ord of  the  bank  in  payment  for  utilities  to  the 
amount  of  $5. 

As  he  sold  potatoes  to  various  purchasers,  B 
would  make  entry  on  his  books  to  the  credit  of 
Potatoes  and  to  the  debit  of  the  purchasers.  As 
the  purchasers  made  payments,  he  would  make  en- 
try to  their  credit.  As  he  deposited  the  payments 
in  the  bank,  B  would  make  entry  on  his  books 
to  the  debit  of  the  bank,  and  the  bank  would  make 
entry  on  its  books  to  the  credit  of  B.  If,  for  ex- 
ample, his  yield  were  150  bushels  of  potatoes  which 
he  sold  at  50  cents  a  bushel,  entries  to  the  credit 


256  THE  FLOW  OF  VALUE 

of  Potatoes  would  amount  to  $75.  This  would 
mean  that  for  the  potatoes  it  had  cost  $50  to  pro- 
duce he  had  received  $75.  This  would  be  double- 
entry-bookkeeping.  Every  transaction  would  give 
rise  to  an  entry  to  debit  and  an  entry  to  credit. 
Thus  would  be  kept  record  of  the  transmutations 
of  value  as  debits  were  incurred  in  raising  pota- 
toes, as  credits  were  received  for  them,  as  these 
credits  were  deposited  in  the  bank,  and  as  debits 
were  incurred  as  indicated  by  the  checks  drawn 
against  them.  When  a  series  of  transactions  re- 
sulted in  an  accumulation  of  credits  in  excess  of 
debits,  the  surplus  would  be  profit;  if  the  debits 
exceeded  the  credits,  the  debit  balance  would  be 
loss. 

When  B  specialized  in  the  raising  of  potatoes 
for  sale,  he  would  be  obliged  to  obtain  from  each 
yield  suflficient  to  enable  him  to  pay  the  cost  of 
production  of  the  subsequent  yield.  If  he  had  ex- 
pended $100  all  told  in  producing  a  given  yield, 
he  would  be  obliged  in  order  to  make  the  same 
expenditure  toward  producing  a  future  yield  to 
obtain  at  least  $100  from  its  sale.  One  hundred 
dollars  would  constitute  his  capital,  or  rather  his 
business  capital.  This  he  would  desire  in  any 
event  to  retain  unimpaired,  and  he  would  en- 
deavor to  increase  it.  If  from  a  given  yield  he 
received  profit  of  $50,  he  could  expend  it  for  vari- 
ous final  utilities  for  the  use  and  consumption  of 
himself  and  those  dependent  upon  him,  or  he 


CAPITAL  257 

could  add  it  to  his  business  capital.  A  man  ac- 
cumulates business  capital  by  not  expending  all 
that  he  receives  for  personal  comfort  and  gratifi- 
cation, but  by  utilizing  a  portion  of  his  credits  in 
future  production.  As  a  man  accumulates  value 
which  he  utilizes  as  business  capital,  he  is  obliged 
to  keep  record  of  it,  and  thus  to  have  an  account 
with  * '  Capital. "  If,  for  example,  when  he  had  ac- 
cumulated $100  and  placed  his  credit  of  that 
amount  in  the  way  of  utilization  in  production, 
that  amount  would  stand  to  the  debit  of  capital. 
As  he  made  various  purchases,  the  amounts  would 
be  credited  to  capital.  At  the  end  of  a  specified 
period  profit  received  would  be  debited  to  cap- 
ital, or  loss  incurred  would  be  credited  to  capital. 
Thus  capital  would  be  replenished  and  increased 
or  impaired  from  time  to  time,  as  the  owner  was 
successful  or  unsuccessful  in  obtaining  return  that 
exceeded  his  expenditure. 

Business  capital  acquires  an  added  significance 
when  there  is  investment  in  instruments  of  pro- 
duction that  are  utilized  in  continued  production. 
In  that  medieval  period  when  the  craftsman  went 
from  house  to  house,  transforming  into  utilities 
the  substance  supplied  by  his  customers,  there 
was  little  of  business  capital.  The  customer  kept 
little  or  no  record  of  the  substance  he  supplied 
the  craftsman,  and  the  craftsman  had  no  instru- 
ments of  production  other  than  the  tools  he  car- 
ried with  him.    But  as  there  evolved  the  crafts- 


258  THE  FLOW  OF  VALUE 

man  transforming  in  his  own  shop  with  his  own 
tools  the  substance  which  he  purchased,  there 
evolved  business  capital.  He  had  been  obliged  to 
provide  stock  and  tools  and  to  purchase  substance. 
This  meant  a  certain  accumulation  of  value.  If 
he  had  always  lived  from  hand  to  mouth,  he  never 
would  have  effected  this  saving  for  utilization  as 
business  capital.  Moreover,  as  he  came  to  employ 
wage-earners,  he  would  be  obliged  to  have  cap- 
ital wherefrom  to  pay  wages.  Thus  there  would 
arise  the  distinction  between  fixed  capital — that 
invested  in  instruments  of  production  continu- 
ously utilized,  and  working  capital — that  invested 
in  substance,  wages,  in  all  designated  as  running 
expenses.  From  the  sale  of  utilities  produced 
must  be  derived  credits  suflScient  not  only  imme- 
diately to  replenish  working  capital,  but  to  pro- 
vide from  time  to  time  for  an  accumulation  of 
credit  that  will  suffice  for  the  repair,  renewal,  and 
replacement  of  instruments  of  production. 

When  an  accumulation  of  value  was  invested 
in  shop  and  tools,  the  account  with  Capital,  in 
order  to  exhibit  the  transmutations  of  value, 
would  have  to  show  the  amount  of  the  investment 
and  that  in  which  it  was  invested.  The  entry,  for 
example,  might  be  as  follows : 

Capital 
Dr.  Cr. 

Capital  investment. .  .$600     Shop $500 

Tools   100 


CAPITAL  259 

If  he  had  in  addition  $200,  wherewith  to  buy  sub- 
stance and  pay  wages,  the  account  would  stand : 

Capital 

Dr.  Cr. 

Capital  investment. .  .$600     Shop $500 

Cash 200     Tools    100 

Business  capital  of  record  on  the  books  of  a 
business  organization  consists  of  the  physical  as- 
sets composed  in  the  main  of  matter-utilities,  and 
of  the  total  of  credit  constituting  its  working  cap- 
ital. There  need  be  no  change  in  the  debit  to  fixed 
capital,  that  is  to  physical  assets,  so  long  as  prop- 
erty in  them  is  retained,  and  so  long  as  they  can 
be  sold  for  credit  equivalent  to  the  debit.  Work- 
ing capital,  however,  is  transmuted  into  the  value 
of  substance  and  into  the  value  of  force  applied 
to  that  substance  as  running  expenses  are  in- 
curred, and  it  is  replenished  as  the  value  of  utili- 
ties produced  is  transmuted  into  credits  in  favor 
of  the  business  organization.  That  obtained  by 
buying  and  selling  which  accrues  to  profit  is  cred- 
ited to  its  ** Profit  and  Loss"  account.  If  the  re- 
sults of  buying  and  selling  are  to  its  loss,  the 
amount  is  debited  to  this  account.  As  the  expend- 
itures exceed  the  receipts,  its  capital  will  diminish. 
As  the  receipts  exceed  the  expenditures,  its  cap- 
ital may  increase.  If  profit  be  not  added  to  the 
capital  of  the  organization  but  paid  to  the  pro- 
prietors, it  is  the  return  to  them  as  individuals 


«60  THE  FLOW  OF  VALUE 

upon  the  contribution  they  have  respectively  made 
to  its  capital. 

Capital  is  recorded  in  terms  of  dollars.  For  the 
physical  assets  entering  into  the  capital  of  a  busi- 
ness organization  at  a  given  time  and  for  which 
a  given  number  of  dollars  have  been  paid,  a 
greater  or  less  number  of  dollars  may  be  obtain- 
able at  another  time.  If  its  capital  is  to  remain 
unimpaired  in  the  event  that  these  matter-utilities 
fall  in  relation  to  the  dollar,  it  must  be  augmented 
by  profit  or  by  additional  investment.  If  its  cap- 
ital is  irretrievably  impaired,  the  amount  of  the 
investment  must  be  **  written  down"  on  the  books. 

Before  the  use  of  steam  as  power,  the  tools  used 
in  agriculture  and  in  the  crafts  were  few  and  sim- 
ple. Lands,  buildings,  and  the  domestic  animals 
of  use  were  value  in  the  possession  of  their  own- 
ers, but  did  not  constitute  business  capital  in  the 
full  modern  sense  of  that  term.  It  was  likewise 
with  the  horses,  wagons,  and  stage  coaches,  sheds 
and  stables,  owned  by  the  carriers  by  land.  There 
was  then  but  little  practice  of  bookkeeping  of  any 
kind.  The  use  of  steam  brought  the  mill,  the  fac- 
tory, and  the  railroad,  each  employing  managers, 
superintendents,  foremen,  and  a  long  list  of  em- 
ployees. To  the  inauguration  of  such  an  organ- 
ization was  requisite  the  investment  of  capital  in 
large  amount.  That  is,  credits  accumulated  from 
past  production  and  sale  were  used  for  the  pur- 
chase of  land,  in  paying  for  the  effort  by  means 


CAPITAL  261 

of  which  were  constructed  buildings,  machines, 
and  appliances,  in  providing  the  working  capital 
with  which  substance  was  purchased  and  wages 
were  paid.  Then  the  practice  of  double-entry 
bookkeeping  extended.  The  increase  in  the  vol- 
ume of  utilities  bought  and  sold  led  to  the  develop- 
ment of  the  modern  bank.  The  evolution  of 
double-entry  bookkeeping  has  virtually  been  coin- 
cident with  the  e.volution  of  the  adjustment  of 
transactions  by  means  of  checks  and  entries  on 
the  books  of  banks. 

A  large  business  organization,  such,  for  exam- 
ple, as  a  corporation  engaged  in  the  manufacture 
of  steel,  may  have  property  in  sources  of  sub- 
stance, such  as  lands  and  beds  of  ore;  in  instru- 
ments of  production,  such  as  mines  and  mills, 
steamboats  and  railroads  with  their  equipment 
of  machines  and  appliances;  may  purchase  sub- 
stances of  various  kinds  in  large  quantities,  trans- 
form them  into  utilities  vast  in  volume,  pay  wages 
to  many  thousands  of  men  from  its  executive  offi- 
cers to  those  who  dig  in  the  mines  and  sweep  the 
floors  of  the  mills.  It  may  have  capital  stock  cov- 
ering proprietary  investments  of  millions  of  dol- 
lars and  bonds  pledging  millions  of  dollars.  It 
may  utilize  sources  of  substance  and  instruments 
of  production  not  only  under  ownership  but  un- 
der lease,  stipulating  the  payment  of  rental.  It, 
therefore,  will  have  accounts  with  capital  and  with 
various  utilities  and  aggregates  of  utilities  that 


262  THE  FLOW  OF  VALUE 

enter  into  its  capital — with  substances  of  various 
kinds,  with  wages,  with  utilities  produced  and 
sold.  These  accounts  may  be  divided  and  subdi- 
vided to  exhibit  the  debits  and  credits  due  to  any 
part  of  its  physical  assets  or  to  any  phase  of  its 
operation. 

Every  entry  to  debit  indicates  the  transmuta- 
tion of  value  in  the  form  of  credit  derived  from 
the  sale  of  utilities  in  the  past  into  value  in  the 
form  that  will  be  utilized  in  the  production  of 
utilities  for  sale  in  the  future.  Every  entry  to 
credit  indicates  the  transmutation  of  value  in  the 
form  of  utilities  that  have  been  sold  into  value 
which  may  be  utilized  in  the  purchase  of  further 
utilities.  The  surplus  of  credits  over  debits,  or 
of  debits  over  credits,  accruing  from  the  operation 
of  any  portion  of  its  assets,  or  any  phase  of  its 
functions  with  which  an  account  is  kept,  is  fo- 
cused in  the  profit  and  loss  account  which  exhibits 
the  total  of  profit  secured  or  of  loss  sustained  dur- 
ing a  given  period.  In  but  small  proportion  are 
the  products  of  a  steel  corporation  final  utilities 
that  immediately  meet  the  wants  of  individuals. 
In  overwhelmingly  large  proportion  they  are  util- 
ities which  are  utilized  by  their  purchasers  in  the 
production  of  other  utilities.  Beams  and  other 
structural  forms  are  wrought  into  instruments  of 
production,  structures,  machines,  and  appliances; 
rails  into  the  tracks  of  railroads ;  sheets  and  other 
forms  into  the  manufacture  of  cars  and  locomo- 


CAPITAL  263 

tives  and  of  vessels  large  and  small.  Bars  are 
wrought  into  tools,  utensils,  and  various  forms 
of  hardware.  Thus  a  steel  corporation  employs 
the  efforts  of  thousands  of  men  in  the  application 
of  the  force  resulting  in  the  production  of  utili- 
ties which  are  utilized  in  the  production  that  re- 
sults ultimately  in  the  final  utilities  which  meet  the 
immediate  wants  of  the  individual. 

Although  a  utility  passes  from  the  hands  of  one 
to  the  hands  of  others  at  every  stage  of  transfor- 
mation, its  ownership  does  not  necessarily  change 
at  every  stage.  Its  ownership  may,  however, 
change  at  any  stage.  At  every  transfer  of  owner- 
ship, there  is  the  exchange  of  the  results  of  all  the 
ramifications  of  force  that  have  focused  in  the 
production  of  the  respective  utilities  that  are  ex- 
changed. At  whatever  stage  there  is  the  change 
of  ownership,  there  is  the  balancing  of  credits  re- 
ceived against  debits  incurred.  When  there  are 
various  changes  of  ownership  at  various  stages  of 
production,  profit  is  made  or  loss  sustained  at 
each  stage.  When  there  is  continual  ownership 
from  the  first  to  the  last  stage,  there  may  be  the 
balancing  of  debits  incurred  against  credits  re- 
ceived at  the  last  stage  only. 

The  last  stage  of  the  production  of  final  utili- 
ties, that  which  results  in  their  assembly  at  the 
place  where  and  the  time  when  they  are  desired 
by  the  final  purchaser,  is  exemplified  by  the  func- 
tions of  a  great  department  store.    It  purchases 


«64  THE  FLOW  OF  VALUE 

final  utilities  in  great  variety  from  many  manu- 
facturers and  sells  them  to  a  multitude  of  pur- 
chasers. The  efforts  of  hundreds  of  thousands  of 
men  are  exerted  directly  and  in  the  application 
of  force  through  countless  machines  in  the  divi- 
sion and  the  subdivision  of  substances  which  are 
combined  and  recombined  in  the  course  of  their 
transformation  into  the  final  utilities  that  are  sold 
in  the  department  stores  and  other  retail  estab- 
lishments throughout  the  country. 

The  annual  report  of  a  steel  corporation  or  of 
a  department  store  is  an  exhibit  of  that  in  which 
it  has  property  constituting  its  fixed  capital,  of 
all  that  is  embraced  in  working  capital,  and  of  the 
transmutations  of  value  for  which  it  has  been 
responsible  throughout  the  year.  But  production 
and  sale  do  not  begin  with  the  first  day  of  the 
year  nor  cease  with  the  last  day  of  the  year.  The 
utilization  of  sources  of  substance  and  instruments 
of  production  continues ;  substance  is  ever  in  proc- 
ess of  transformation  and  stocks  of  final  utilities 
are  ever  awaiting  sale.  The  balance  sheet,  the 
income  account,  all  of  the  statements  that  are 
embodied  in  the  annual  report  of  a  business  organ- 
ization, are  an  exhibit  for  a  period  that  seldom 
synchronizes  with  any  clearly  marked  period  of 
operation. 

An  entry  to  its  debit  in  the  record  of  accounts 
on  the  books  of  a  business  organization  means 
that  value  has  passed  from  others  to  it.    An  entry 


CAPITAL  265 

to  its  credit  means  that  value  has  passed  from  it 
to  others.  If  every  business  organization  and 
every  individual  or  every  family  kept  such  ac- 
counts, there  would  be  a  complete  record  of  all  of 
value  throughout  all  of  its  transmutations. 


XVIII 

THE  ULTIMATE   UNITS   OP   PRODUCTION   AND 
CONSUMPTION 

As  business  organizations  increase  in  magni- 
tude, their  purchases  and  their  sales  increase. 
Credits  flow  to  them  in  great  totals  as  they  pro- 
duce and  sell  utilities  in  vast  volumes.  Debits 
are  incurred  in  great  totals  as  they  pay  wages  in 
the  large  amounts  composed  of  the  smaller 
amounts  paid  to  each  wage-earner.  Debits  are  in- 
curred in  great  totals  as  they  pay  for  substance 
in  the  quantities  composed  of  the  smaller  meas- 
ures in  which  it  is  taken  from  its  sources.  Mer- 
chants incur  debits  in  large  totals  and  receive 
credits  in  large  totals  as  they  buy  and  sell  vast 
volumes  of  final  utilities.  No  matter  how  large 
the  transactions,  they  arise  from  the  activity  of 
human  beings  in  meeting  the  wants  of  human  be- 
ings. But  because  of  the  interweaving  of  human 
effort  and  cosmic  force,  it  becomes  ever  more  diflS- 
cult  to  trace  the  effect  of  the  effort  of  any  given 
person  in  the  production  of  any  given  utility. 
Often  portions  of  the  efforts  of  a  number  of  per- 
sons, sometimes  of  hundreds  or  of  thousands,  are 
coordinated  in  the  application  of  cosmic  force  in 

266 


THE  ULTIMATE  UNITS  267 

the  production  of  even  the  smallest  measure  of  a 
utility  of  general  use. 

The  dollar  continues  to  be  the  expression  of 
the  relation  between  effort  put  forth  and  wants 
met.  Or  rather,  as  human  effort  more  and  more 
becomes  merged  with  all  of  the  productive  forces 
of  which  it  avails  and  which  it  directs,  the  dollar 
comes  to  be  the  expression  of  the  relation  be- 
tween a  measure  of  force  applied  and  a  measure 
of  the  wants  met  by  the  results  of  its  application. 
It  is  no  longer  the  aggregate  alone  of  human  effort 
put  forth,  and  the  aggregate  of  wants  met.  It 
now  becomes  an  aggregate  of  force  applied,  and 
an  aggregate  of  wants  met.  The  aggregate  of 
force  is  composed  of  human  effort  emanating  from 
the  body  and  the  brain,  and  of  the  cosmic  force 
applied  by  means  of  human  effort. 

As  any  aggregate  is  divisible  into  its  parts,  the 
aggregate  of  force  applied  in  production  must  be 
so  divisible.  Let  us  designate  a  unit  of  force  so 
applied  as  a  force-utility-unit.  The  aggregate  of 
wants  that  are  met  must  also  be  divisible.  Let  us 
designate  a  unit  of  wants  met  as  a  want-utility- 
unit. 

When  we  have  arrived  at  the  conception  of  a 
unit  by  which  to  measure  force  applied  in  meet- 
ing wants,  and  of  a  unit  by  which  to  measure 
wants  met,  it  follows  that  these  units  may  be  ap- 
plied to  any  measure  of  force  or  to  any  measure 
of  wants.    That  is,  as  all  matter  having  linear 


268  THE  FLOW  OF  VALUE 

relation  to  space  is  divisible  into  yards,  the  yard 
may  be  applied  to  the  measurement  of  any  form 
of  matter  having  that  relation ;  and  as  all  matter 
having  relation  to  the  force  of  gravity  is  divisible 
into  pounds,  the  pound  may  be  applied  to  measure 
any  form  of  matter  having  relation  to  the  force 
of  gravity.  So  also  may  the  force-utility-unit  be 
applied  to  any  measure  of  force  applied  in  the 
production  of  utilities,  and  the  want-utility-unit 
may  be  applied  to  any  measure  of  wants  that  are 
met. 

If  it  be  objected  that  such  units  as  these  are 
without  practical  significance,  there  is  the  reply 
that  units  of  density,  of  specific  gravity,  and  other 
units  that  once  were  beyond  conception  have  been 
determined  in  various  fields  of  science,  and  are 
now  indispensable,  although  they  are  little  used  in 
the  routine  of  daily  life.  The  electron,  the  atom, 
and  the  molecule  are  unknown  to  the  transactions 
of  industry  and  commerce,  although  things  meas- 
ured by  such  commercial  units  as  pounds,  bushels, 
and  yards  are  built  up  of  electrons,  atoms,  and 
molecules;  and  therefore  they  are  the  ultimate 
constituents  of  every  material  thing  that  enters 
into  industry  and  commerce.  So  also  is  the  force 
applied  in  the  production  of  utilities,  and  the 
wants  that  are  met  by  the  utilities  produced,  built 
up  of  ultimate  units.  As  electrons,  atoms,  and 
molecules  are  combined  and  recombined  into  forms 
of  matter  of  endless  variety,  so  also  are  force- 


THE  ULTIMATE  UNITS  269 

utility-units  combined  and  recombined  in  their  ap- 
plication. 

The  very  fact  that  the  dollar  is  applied  to  that 
which  produces  and  to  that  which  is  produced, 
demonstrates  that  that  which  produces  is  divisible 
into  the  measures  to  which  the  dollar  is  applied, 
and  that  which  is  produced  is  divisible  into  the 
measures  to  which  the  dollar  is  applied.  That 
which  produces  is  force.  Applied  to  the  sources 
of  substance,  force  produces  utilities  in  the  form 
of  substance;  applied  to  substance,  force  trans- 
forms it  into  intermediate  utilities ;  applied  to  in- 
termediate utilities,  force  transforms  them  into 
final  utilities.  By  means  of  final  utilities,  human 
wants  are  met.  Therefore,  in  the  ultimate  anal- 
ysis it  is  force-utility-units  and  want-utility-units 
that  are  measured  by  dollars. 

"When  a  producer  buys  utilities  in  the  form  of 
substance,  or  intermediate  utilities  into  which  sub- 
stance has  been  transformed,  he  buys  the  results 
of  that  application  of  force  for  which  wages  have 
been  paid  to  human  beings  who  have  been  instru- 
mental in  its  application.  His  payment  for  instru- 
ments of  production  and  all  requisite  to  their 
operation  is  likewise  pajnnent  for  the  results  of 
the  application  of  force  for  which  wages  have  been 
paid  to  the  human  beings  who  have  been  instru- 
mental in  its  application.  The  direct  payment  of 
wages  is  for  human  effort  enlisted  in  that  appli- 
cation of  force  for  which  the  producer  is  respon- 


270  THE  FLOW  OF  VALUE 

sible.  The  primary  function  of  production,  there- 
fore, is  the  application  of  force,  of  force-utility- 
units,  whether  of  human  effort  or  of  cosmic  force. 
The  measurement  of  force  by  the  degree  of  in- 
tensity applied  during  a  given  time  as,  for  ex- 
ample, the  kilowat-hour,  suggests  the  unit  by 
which  effort  put  forth  by  a  human  being  may  be 
measured  in  its  relation  to  that  human  being.  The 
instrument  that  puts  forth  human  effort  is  the 
man :  the  smallest  integral  unit  of  the  period  dur- 
ing which  he  exerts  effort  is  the  hour.  Therefore, 
analogy  leads  to  the  man-hour  as  the  designation 
of  such  a  unit.  That  kind  of  mental  effort  which 
conceives,  designs,  and  directs  can  not  be  meas- 
ured by  hours  of  definite  application,  because  it 
is  often  the  result  of  conscious  thought  that  ab- 
sorbs nearly  all  of  the  waking  hours,  and  may  be 
of  subconscious  cerebration  that  proceeds  even 
during  sleep.  But  that  kind  of  human  effort 
which  is  similar  to  mechanical  force  in  that  it  is 
of  physical  effect  is  definitely  put  forth  during 
working  hours.  Thus  perhaps  it  fairly  can  be 
measured  by  man-hours,  even  though  the  man- 
hours  of  men  of  different  races,  and  of  men  of  the 
same  race,  are  of  different  quality  and  effect.  The 
tendency  toward  the  payment  of  the  same  wage 
to  men  of  an  equal  degree  of  eflBciency  obviously 
is  a  tendency  toward  the  payment  of  the  same 
wage  for  man-hours  of  an  equal  degree  of  eflEi- 
ciency. 


THE  ULTIMATE  UNITS  271 

The  hour  can  not  fairly  be  taken  as  the  unit 
of  the  time  during  which  human  existence  is  main- 
tained. The  round  of  nutrition,  work,  recreation, 
sleep,  corresponds  to  the  day  of  twenty-four 
hours.  During  that  period  vitality  reaches  its 
highest  tension,  and  ebbs  to  its  feeblest  pulsation. 
Therefore,  the  smallest  unit  by  which  human  exist- 
ence adequately  can  be  measured  is  the  man-day. 
Thus  effort  put  forth  during  man-hours  supports 
existence  during  man-days. 

The  difficulty  of  arriving  at  exact  definition  be- 
sets measurement  by  all  kinds  of  units  whether 
of  area,  length,  weight,  volume,  or  number.  An 
acre  of  land  of  one  kind  may  be  vastly  different 
in  its  characteristics  from  an  acre  of  land  of  an- 
other kind;  wheat  is  measured  by  bushels,  but 
there  also  has  to  be  indication  of  the  grade.  So 
also  with  cotton,  potatoes,  lumber,  utilities  of  any 
kind.  In  addition  to  the  units  by  which  they  are 
measured  as  forms  of  matter,  there  must  be  indi- 
cation of  the  kind  and  quality.  Variance  in  that 
which  is  measured  by  a  common  unit  finds  illustra- 
tion in  the  fact  that  matter  of  the  same  chemical 
constituents  in  the  same  proportions  may  exist 
in  solid,  liquid,  or  gaseous  form.  Although  un- 
changed in  its  essence,  its  measurement  by  weight 
would  vary  in  relation  to  measurement  by  volume 
as  it  was  in  one  form  or  another.  The  grouping 
of  things  of  specific  designation  into  general 
classes,  and  the  reduction  of  the  general  classes 


272  THE  FLOW  OF  VALUE 

to  measurement  by  a  common  unit,  is  exemplified 
by  the  jest  of  the  man  in  a  restaurant  who  said 
to  a  waiter,  ** Bring  me  an  assortment  of  proteins, 
fats,  and  carbohydrates ;  about  eight  hundred  cal- 
ories. I  leave  it  to  you."  It  is  not  at  all  incon- 
ceivable that  the  time  may  come  when  a  trained 
waiter  will  accept  and  comply  with  such  a  request, 
just  as  he  now  fills  an  order  for  steak,  potatoes, 
and  salad. 

Whatsoever  has  that  relation  to  time  or  space 
or  force  which  makes  it  susceptible  of  definite 
designation  is,  at  least  in  the  abstract,  susceptible 
of  measurement  by  a  unit  which  indicates  the  de- 
gree of  that  relation.  Therefore,  the  force-utility- 
unit  and  the  want-utility-unit,  the  man-hour  and 
the  man-day  are  not  without  a  logical  basis. 

If  the  aggregate  of  force  applied  always  re- 
sulted in  the  production  of  utilities  that  met  the 
aggregate  of  wants,  there  would  be  exact  corre- 
spondence between  the  aggregate  of  force-utility- 
units  and  the  aggregate  of  want-utility-units. 
Therefore,  the  force-utility-unit  and  the  want- 
utility-unit  might  exactly  correspond.  As,  how- 
ever, only  a  portion  of  the  force-utility-units  are 
of  human  effort,  the  aggregate  of  the  force-utility- 
units  of  the  man-hours  applied  in  production 
would  not  correspond  to  the  aggregate  of  the 
force-utility-units  applied  in  production.  As  the 
effort  of  different  men  is  of  different  effect,  a 
man-hour  would  not  coincide  with  a  definite  num- 


THE  ULTIMATE  UNITS'  273 

ber  of  force-utility-units ;  that  is,  the  different 
man-hours  of  different  men  would  represent  differ- 
ent totals  of  force-utility-units.  And  as  there  is 
a  difference  in  the  wants  of  different  persons,  the 
man-day  of  one  would  represent  a  number  of 
want-utility-units  different  from  that  of  another. 
Therefore,  different  measures  of  want-utility- 
units  would  be  required  for  the  man-days  of  differ- 
ent men,  and  different  measures  of  force-utility- 
units  would  be  applied  by  the  man-hours  of  differ- 
ent men.  Therefore,  human  effort  could  not  be 
measured  exactly  by  man-hours,  but  by  force- 
utility-units  ;  human  wants  could  not  be  measured 
exactly  by  man-days,  but  by  want-utility-units. 
That  is,  want-utility-units  would  be  received  by 
different  men  in  different  measures,  and  force- 
utility-units  would  emanate  from  different  men 
in  different  measures.  That  is,  the  force-utility- 
units  of  the  man-hour  of  one  man  would  buy  want- 
utility-units  in  different  measures  from  the  force- 
utility-units  that  the  man-hour  of  another  man 
would  buy. 

Therefore,  it  would  be  a  certain  number  of  force- 
utility-units  that  would  buy  a  certain  number  of 
want-utility-units,  and  a  certain  number  of  want- 
utility-units  that  would  buy  a  certain  number  of 
force-utility-units.  Thus  there  would  have  to  be 
a  unit  for  the  designation  of  the  number  of  want- 
utility-units  that  a  given  number  of  force-utility- 
units  would  buy;  and,  conversely,  of  the  number 


274  THE  FLOW  OF  VALUE 

of  force-utility-units  that  a  given  number  of  want- 
utility-units  would  buy.  The  dollar  practically  is 
such  a  unit.  The  dollar  pays  for  a  certain  num- 
ber of  force-utility-units,  and  it  pays  for  a  certain 
number  of  want-utility-units. 

If  the  aggregate  of  force  applied  always  re- 
sulted in  the  production  of  utilities  that  met  the 
aggregate  of  wants,  the  result  of  one  force-utility- 
unit  might  be  one  want-utility-unit.  Thus,  as  one 
force-utility-unit  would  exactly  correspond  with 
one  want-utility-unit,  "utility-unit"  might  serve 
as  a  common  designation  of  a  unit  of  force  applied 
and  a  unit  of  want  met.  As  it  is,  however,  greater 
or  less  measures  of  force  are  applied  in  the  pro- 
duction of  the  measure  of  utilities  of  one  kind 
which  have  the  ratio  of  the  dollar,  than  are  ap- 
plied in  the  production  of  the  respective  measures 
of  utilities  of  other  kinds  that  have  the  ratio  of 
the  dollar.  That  is,  the  same  number  of  dollars 
are  paid  for  different  measures  of  force-utility- 
units  and  of  want-utility-units.  Therefore,  the 
relation  between  the  force-utility-unit  and  the 
want-utility-unit  varies  from  the  standpoint  of 
buying  and  selling. 

Nevertheless,  it  may  not  be  impossible  to  con- 
ceive of  a  utility-unit.  If  there  could  be  deter- 
mined the  essential  utilities  in  their  simplest 
forms  and  in  their  respective  proportions  required 
for  the  support  of  the  simplest  man-day,  such  as 
the  number  of  calories  required  for  food,  the  num- 


THE  ULTIMATE  UNITS  275 

ber  of  thermal  units  required  for  clothing  and  for 
shelter,  the  number  of  cubic  feet  of  air  required 
for  respiration,  and  we  could  arrive  at  the  force- 
utility-units  required  in  their  production,  we 
should  have  a  primary  and  fundamental  unit  for 
the  expression  of  force-utility-units  in  terms  of 
want-utility -units,  and  for  the  expression  of  want- 
utility-units  in  terms  of  force-utility-units.  This 
unit  could  be  termed  the  utility-unit.  Then  the 
number  of  force-utility-units  required  to  produce 
the  utilities  necessary  to  support  the  least  effec- 
tive man-day  could  be  designated  the  utility-unit. 
Conversely,  to  maintain  support  for  one  day  a 
man  would  have  to  pay  one  utility-unit.  Man- 
hours  of  different  kinds,  qualities,  and  effects 
could  be  measured  by  the  utility-unit,  by  multi- 
ples or  fractions  thereof.  Utilities  of  different 
kinds  could  be  bought  and  sold  in  terms  of  the 
utility-unit,  in  multiples  or  fractions  thereof. 

Far  fetched  as  this  suggestion  may  seem,  it  is 
indisputable  that  as  human  effort  is  primarily  put 
forth  to  maintain  human  existence,  the  unit  of  ex- 
change, by  whatever  term  it  be  designated,  must 
have  a  relation  to  the  man-hours  required  for  the 
support  of  man-days.  This  is  the  basis  of  the 
relation  between  effort  applied  and  wants  met 
that  finds  expression  in  the  dollar.  Dollars  are 
paid  to  men  for  effort  put  forth,  or  for  the  re- 
sults of  effort  put  forth;  they  are  primarily  paid 
by  men  for  that  which  maintains  their  existence. 


276  THE  FLOW  OF  VALUE 

If  force-utility-units  and  want-utility-units  could 
be  determined,  these  units  would  have  a  relation 
to  the  man-hour  and  the  man-day.  They  would 
be  the  units  into  which  the  man-hour  and  the  man- 
day  were  ultimately  resolved. 

This  follows  from  the  fact  that  the  lowest  wage 
which  continuously  can  be  paid  to  any  person  en- 
gaged in  production  is  that  which  will  enable  him 
to  buy  the  underlying  utilities  essential  to  his  ex- 
istence. This  is  true,  even  though  in  the  produc- 
tion of  utilities  of  every  kind  are  enlisted  various 
men  of  varying  capacity  in  the  exertion  of  efforts 
that  differ  in  kind,  quality,  and  effect.  If  an  em- 
ployer needs  crude  and  simple  physical  effort 
only  temporarily  or  sporadically,  as  in  shoveling 
snow  from  his  sidewalk  or  carrying  a  load  of  coal 
into  his  cellar,  he  may,  if  there  be  a  man  willing 
to  accept  it,  pay  for  the  job  no  more  than  enough 
to  enable  him  to  buy  food  that  will  maintain  his 
vitality  for  only  a  limited  period.  If  the  employer 
needs  such  crude  physical  effort  continuously,  on 
a  farm,  in  a  mine,  mill  or  factory,  office  or  store, 
he  possibly  may  be  able  to  obtain  it  by  paying 
such  wages  from  day  to  day,  if  there  are  those 
who  are  obliged  to  work  for  such  wages.  But 
such  men  will  be  of  low  physical  strength.  From 
lack  of  capacity  or  lack  of  inclination  they  will 
not  be  able  to  do  even  crude  work  with  any  degree 
of  steadiness.  The  employer  must  pay  wages  that 
enable  employees  of  even  the  lowest  grade  to 


THE  ULTIMATE  UNITS  «77 

obtain  the  food,  clothing,  and  shelter  necessary 
to  maintain  their  vitality  at  least  as  long  as  their 
employment  continues.  So  also  with  every  man 
who  puts  forth  effort,  whether  at  the  behest  of 
an  employer  or  whether  by  what  is  called  "work- 
ing for  himself,"  which  is  no  more  than  working 
for  his  customers — a  number  of  employers  instead 
of  one.  He  can  not  continue  to  put  forth  his 
efforts  unless  he  receives  the  essential  utilities  in 
the  proportions  required  to  maintain  his  existence. 
Thus,  if  the  man-day  be  taken  as  the  unit  of  man 's 
existence,  he  must  be  supplied  with  the  essential 
utilities  in  the  proportions  required  to  maintain 
his  existence  for  a  man-day. 

Inasmuch  as  through  the  specialization  of  ef- 
fort, the  coordination  of  effort,  the  specialized  co- 
ordination of  human  effort  and  cosmic  force,  which 
has  been  facilitated  by  discovery  and  invention, 
the  number  of  man-hours  required  for  the  sup- 
port of  the  man-day  tends  to  decrease,  or,  what 
amounts  to  the  same  thing,  a  greater  number  of 
man-days  can  be  supported  with  a  given  number 
of  man-hours,  the  man-hours  applied  at  a  previ- 
ous time  have  tended  to  result  in  the  provision  of 
a  greater  volume  of  want-utility-units  at  a  suc- 
ceeding time.  The  greater  the  proportion  in 
which  force-utility-units  are  constituted  of  cosmic 
force,  the  greater  will  be  the  volume  of  want- 
utility-units  produced  in  relation  to  a  given  num- 
ber of  man-hours,  and,  therefore,  other  things 


278  THE  FLOW  OF  VALUE 

equal,  the  greater  the  number  of  man-days  they 
will  support.  As  there  has  been  the  multiplica- 
tion of  want-utility-units  in  volume  beyond  that 
needed  for  the  support  of  the  population  that  ex- 
erts demand,  there  has  been  an  increase  in  the 
variety  of  utilities  produced  by  the  application 
of  the  man-hours  of  those  engaged  in  produc- 
tion. 

As  man-hours  are  devoted  to  the  production  of 
other  than  the  essential  utilities,  the  relation  of 
man-hours  to  the  utility-unit  varies,  the  relation 
of  utilities  to  the  man-day  varies.  Those  whose 
man-hours  bring  only  the  utilities  requisite  for 
the  support  of  the  man-day  continue  to  obtain 
the  utility-unit.  Those  whose  man-hours  bring 
greater  credits  receive  more  than  the  utility-unit. 
The  relation  of  utility-units  to  their  respective 
man-days  is  different. 

But,  inasmuch  as  the  utility-unit  expresses  the 
simplest  relation  of  supply  and  demand,  it  fol- 
lows that  other  utilities  of  whatever  kind  must 
bear  a  certain  relation  to  the  utility-unit.  As  the 
man-hours  of  one  man  are  more  effective  than 
those  of  another,  the  utilities  he  receives  are  mul- 
tiples of  the  utility-unit.  As  utilities  are  more 
than  sufficient  for  the  maintenance  of  the  man-day, 
they  are  multiples  of  the  utility-unit.  Inasmuch 
as  the  utility-unit  is  an  expression  of  the  relation 
of  the  essential  utilities  in  relation  to  man-hours, 
of  supply  to  the  man-day,  it  follows  that  the  util- 


THE  ULTIMATE  UNITS  279 

ity-unit  is  the  fundamental  unit  of  supply  and 
demand. 

This  discussion  of  force-utility-units,  want-util- 
ity-units, and  the  utility-unit,  of  man-hours  and 
man-days  is  necessarily  hypothetical.  Even 
though  these  hypothetical  units  can  not,  at  least 
in  the  light  of  our  present  knowledge,  be  deter- 
mined with  even  an  approach  to  exactitude,  they 
will  serve  a  useful  purpose  in  what  here  can  not 
be  more  than  a  supposititious  application. 

Let  us,  for  example,  make  such  an  application  in 
a  review  of  a  phase  of  commercial  and  industrial 
activity.  On  the  farm  there  is  the  plowing  of 
the  soil,  the  sowing  of  the  seed,  the  reaping  of 
the  stalks,  the  threshing  of  the  grain,  its  trans- 
portation to  the  country  elevator.  Thence  the 
grain  passes  to  the  mill,  perhaps  in  a  remote  city, 
where  it  is  converted  into  flour.  The  flour  passes 
to  the  wholesale  dealer,  who  sells  it  to  the  bak- 
ing company,  which  converts  it  into  the  bread 
that  passes  to  the  consumer.  This  course  from 
the  production  of  the  substance  to  the  production 
of  the  final  utilities  is  marked  by  four  transfers  of 
ownership ;  first,  of  the  grain  when  it  passed  from 
the  farmer  to  the  milling  company  at  the  country 
elevator ;  second,  of  the  flour  when  it  passed  from 
the  milling  company  to  the  wholesale  dealer ;  third, 
when  it  passed  from  the  wholesale  dealer  to  the 
baker;  fourth,  when  the  bread  passed  from  the 
baker  to  the  consumer. 


280  THE  FLOW  OF  VALUE 

Now  let  us  suppose  that  to  the  production  of 
a  given  quantity  of  bread  there  were  applied  on 
the  farm  10,000  force-utility-units  of  which  4000 
were  the  result  of  ten  men  working  twenty  hours 
each,  or  of  200  man-hours;  that  on  the  railroads 
from  the  elevator  to  the  mill  were  applied  10,000 
force-utility-units  of  which  2000  were  represented 
by  100  man-hours;  that  at  the  mill  were  applied 
10,000  force-utility-units,  of  which  1000  were  rep- 
resented by  50  man-hours ;  that  in  transportation 
to  the  wholesale  dealer  were  applied  12,000  force- 
utility-units,  of  which  2000  were  represented  by 
100  man-hours;  that  at  the  wholesale  warehouse 
were  applied  2000  force-utility-units,  of  which  800 
were  represented  by  40  man-hours ;  that  in  trans- 
portation to  the  bakery  were  applied  2000  force- 
utility-units,  of  which  200  were  represented  by  10 
man-hours ;  that  at  the  bakery  were  applied  10,000 
force-utility-units,  of  which  2000  were  represented 
by  100  man-hours ;  that  in  conveyance  to  consum- 
ers were  applied  10,000  force-utility-units,  of 
which  200  were  represented  by  100  man-hours. 
On  the  supposition  that  the  bread  into  which  the 
grain  finally  was  converted  was  suflScient,  perhaps, 
for  the  three  meals  of  10,000  persons  for  one  day, 
and  that  of  these  10,000  persons  2000  put  forth 
effort  of  eight  hours  a  day,  the  700  man-hours 
represented  all  of  human  effort  immediately  ap- 
plied in  supplying  the  bread  for  10,000  man-days 
from  which  emanated  16,000  man-hours  applied 


THE  ULTIMATE  UNITS  281 

in  production.  To  be  sure,  other  kinds  of  food 
than  bread  entered  into  the  consumption.  Let  it 
be  supposed  that  into  the  supply  of  all  of  the 
food  entered  5000  man-hours ;  of  all  of  the  cloth- 
ing, 2000  man-hours ;  of  all  of  the  shelter,  and  its 
appurtenances,  1000  man-hours;  and  of  all  other 
final  utilities,  500  man-hours.  Thus  the  force  of 
8500  man-hours  was  all  of  the  human  effort  imme- 
diately exerted  in  supplying  the  final  utilities  for 
10,000  man-days  from  which  emanated  16,000  man- 
hours  immediately  applied  in  the  transformation 
of  substance  into  final  utilities.  There  remain 
7500  man-hours  applicable  to  the  transformation 
of  substance  into  instruments  of  production  and 
into  various  other  utilities. 

In  an  attempt  briefly  to  give  some  indication  of 
the  ramifying  transfers  of  debits  and  credits  that 
are  correlative  with  production,  buying,  and  sell- 
ing, and  that  depend  ultimately  upon  the  relation 
of  man-hours  to  man-days,  let  us  premise  that  at 
a  given  time,  as  the  result  of  transactions  in  the 
past,  all  responsible  for  production  have  dollars 
to  their  credit  on  the  books  of  banks  sufficient  to 
pay  for  substance,  and  to  pay  wages  requisite  to 
further  production;  that  all  merchants,  whether 
wholesale  or  retail,  have  dollars  to  their  credit 
sufficient  to  pay  for  incoming  stock  and  to  pay 
wages;  that  all  purchasers  of  final  utilities  have 
sufficient  dollars  to  their  credit  to  enable  them  to 


«82  THE  FLOW  OF  VALUE 

pay  for  them;  and  that  all  payments  are  made  by 
checks  on  banks. 

Let  us  suppose  that  for  each  of  the  20,000,000 
families  in  the  United  States  there  is  one  person 
actively  engaged  in  the  processes  of  industry  and 
commerce ;  that  is,  that  20,000,000  are  so  engaged. 
Let  us  suppose  that  3,000,000  are  engaged  in  farm- 
ing, that  is  in  raising  substance  for  food  and  sub- 
stance for  clothing;  that  1,000,000  are  engaged  in 
lumbering;  1,000,000  in  mining;  2,000,000  in  trans- 
portation; 3,000,000  in  manufacturing,  that  is  in 
the  operation  of  mills  and  factories;  1,000,000  in 
wholesale  dealing;  2,000,000  in  retail  dealing; 
1,000,000  in  the  provision  of  instruments  of  pro- 
duction ;  the  remaining  6,000,000  in  all  other  occu- 
pations, including  domestic  service  and  the  prac- 
tice of  the  professions  and  the  arts. 

It  is  those  responsible  for  production  and  ex- 
change who  receive  credits  for  the  utilities  sold, 
and  incur  debits  to  those  who  have  contributed  to 
the  production.  Therefore,  it  is  necessary  to  sub- 
divide the  foregoing  groups  into  groups  of  em- 
ployers and  employees.  Let  us  suppose  that  this 
subdivision  is  as  follows : 

Engaged  in               Employers  Employees  Total 

Farming 500,000  2,500,000  3,000,000 

Lumbering 100,000     -  900,000  1,000,000 

Mining 100,000  900,000  1,000,000 

Transportation 100,000  1,900,000  2,000,000 

Manufacturing   500,000  2,500,000  3,000,000 

Wholesale  dealing 100,000  900,000  1,000,000 

Retail  dealing   500,000  1,500,000  2,000,000 


THE  ULTIMATE  UNITS  283 

Providing    instruments    of 

production 100,000  900,000  1,000,000 


2,000,000  12,000,000  14,000,000 

All  other  occupations 6,000,000 


20,000,000 


The  shoppers  for  the  20,000,000  families  pur- 
chase from  the  500,000  retail  dealers  food  and 
clothing  and  the  divers  things  of  household  need. 
For  these  utilities  they  pay  checks  to  the  retail 
dealers,  who  deposit  them  in  their  banks.  The 
retail  dealers  receive  from  the  wholesale  dealers, 
through  the  agencies  of  transportation,  utilities  to 
replace  those  sold.  They  pay  checks  to  the 
agencies  for  transportation,  and  to  the  wholesale 
dealers.  They  must  pay  wages  to  their  million 
and  a  half  employees,  for  all  that  is  required  in  the 
conduct  of  their  business,  and  must  purchase  final 
utilities  for  themselves  and  their  families.  All  of 
those  engaged  in  retail  dealing  are  themselves 
customers  of  retail  dealers.  From  the  retail 
shops  final  utilities  pass  for  the  use  and  consump- 
tion of  20,000,000  families.  That  is,  the  2,000,000 
persons  engaged  in  retail  dealing  assemble  for 
20,000,000  families  the  utilities  they  want  at  the 
place  where  and  the  time  when  they  want  them. 

The  checks  received  by  the  100,000  wholesale 
dealers  give  rise  to  entries  to  their  credit  on  the 
books  of  banks.  They  obtain  from  manufactur- 
ers, by  means  of  transportation,  utilities  to  re- 


«84  THE  FLOW  OF  VALUE 

place  those  consigned  to  the  retail  dealers.  They 
pay  checks  to  the  manufacturers,  and  to  the  trans- 
porters, for  wages  to  their  employees,  for  all  that 
is  required  in  the  conduct  of  their  business,  and 
for  the  final  utilities  for  themselves  and  their  fam- 
ilies. From  those  engaged  in  farming,  lumbering, 
and  mining  the  manufacturers  obtain  substance, 
which  they  transform  into  utilities  to  replace  those 
consigned  to  the  wholesale  dealer.  To  replace  the 
substance  consigned  to  manufacturers,  the  700,000 
employers  in  farming,  lumbering,  and  mining  pro- 
duce foodstuffs,  clothing  stuffs,  logs,  and  min- 
erals. The  checks  received  from  the  manufactur- 
ers enable  them  to  pay  wages  and  to  purchase  the 
things  they  need. 

Thus  we  perceive  that  under  our  supposititious 
grouping  5,000,000  persons  engaged  in  farming, 
lumbering,  and  mining  supply  foodstuffs,  clothing 
stuffs,  and  minerals;  2,000,000  persons  provide 
transportation;  3,000,000  transform  substance 
into  further  utilities;  1,000,000  supply  wholesale 
service;  and  2,000,000  retail  service.  The  em- 
ployers in  each  occupation  need  structures,  ma- 
chines, and  appliances.  Portions  of  the  credits 
received  by  them  must  be  paid  to  the  100,000  em- 
ployers engaged  in  this  provision,  who  pay  wages 
and  for  the  other  utilities  they  need.  The  14,000,- 
000  persons  engaged  in  the  foregoing  pursuits  re- 
quire the  services  of  bankers,  doctors,  lawyers, 
teachers,   writers,    and    domestic    servants,    who 


THE  ULTIMATE  UNITS  285 

must  have  dollars  for  the  utilities  they  need  in 
exchange  for  the  services  they  render.  From 
each  individual  radiates  demand  for  utilities;  to- 
ward each  individual  flows  a  supply  of  utilities. 
Through  those  responsible  for  the  processes  of 
production  and  sale,  the  waves  of  demand  focus 
and  the  waves  of  supply  radiate.  Thus  the  en- 
tries to  the  debit  and  to  the  credit  of  the  depos- 
itors on  the  books  of  banks  mark  the  intersections 
of  waves  of  demand  and  waves  of  supply. 

From  the  credits  they  receive,  those  responsible 
for  production  must  set  aside  sufficient  for  the  re- 
pair, renewal,  and  replacement  of  instruments  of 
production,  and  must  pay  for  insurance.  At  the 
the  end  of  specified  periods  they  must  pay  rental 
to  the  owners  of  property  utilized  under  lease, 
interest  for  the  utilization  of  capital  for  which 
they  have  pledged  return,  and  dividends  as  profit 
is  divided. 


xrx 

A    SUMMAEY,    RESTATEMENT    AND    FURTHER    ANALYSIS 

Even  though  the  ultimate  units  are  not  at  pres- 
ent determined,  they  are  not  without  a  signifi- 
cance which  will  illumine  a  summary  and  restate- 
ment of  the  preceding  exposition  of  economic 
phenomena,  and  lead  to  a  deeper  perception  of 
their  purport. 

Production,  Buying,  and  Selling  by  Individuals 

A  person  can  not  continually  apply  his  efforts  in 
production  unless  he  have  the  utilities  which  main- 
tain the  vitality  from  which  his  effort  emanates; 
that  is,  he  must  have  food,  clothing,  and  shelter. 
When  through  the  application  of  the  effort  of  a 
number  of  his  slaves  a  slave-holder  could  supply 
all  of  his  slaves  with  these  essentials,  he  could 
direct  the  efforts  of  the  number  not  so  engaged 
into  other  production.  The  despot  who  supplied 
all  of  his  subjects  with  these  essential  utilities 
produced  by  part  of  them  likewise  could  utilize  the 
efforts  of  the  number  not  so  engaged  in  other  pro- 
duction. Payment  for  the  effort  of  slave  or  sub- 
ject was  at  the  will  of  master  or  despot,  who  de- 

286 


SUMMARY,  RESTATEMENT  287 

tennined  the  kinds  of  things  produced.  Even 
under  a  regime  of  slavery  or  despotism,  however, 
there  tends  to  develop  a  certain  exchange  of 
things  and  services  between  individuals,  which  be- 
comes a  powerful  factor  in  overthrowing  that 
regime.  Whether  or  not  the  exchange  of  things 
and*  services  at  the  will  of  buyer  and  seller  be  re- 
tarded by  slavery  and  despotism,  it  develops  from 
a  stage  of  self-sufficiency  by  the  production  of  a 
surplus  over  the  needs  of  the  producers. 

When  there  is  exchange  at  the  will  of  buyers 
and  sellers,  things  of  one  kind  are  exchanged  for 
things  of  another  kind  in  the  proportions  which 
buyers  are  willing  to  pay  and  sellers  are  willing  to 
accept.  As  a  person  obtains  things  of  the  kinds 
he  wants  in  exchange  for  things  of  the  kind  he  can 
produce  to  advantage,  he  is  led  to  increase  his  pro- 
duction of  things  of  that  kind.  If  he  can  not  ob- 
tain that  which  he  wants  in  return  for  that  which 
he  has  to  sell,  he  will  cease  to  produce  a  surplus 
above  his  own  needs  of  things  of  that  kind,  or  that 
surplus  will  be  waste.  As  specialization  extends, 
each  person  devotes  more  of  his  efforts  to  the  pro- 
duction of  the  things  he  can  sell  to  advantage  and 
less  to  the  production  of  the  things  he  can  buy  to 
advantage.  This  leads  those  who  can  produce 
and  sell  utilities  of  a  certain  kind  or  kinds  to  ad- 
vantage to  devote  their  efforts  exclusively  to  the 
production  of  such  utilities.  But  if  they  produce 
more  even  of  these  things  than  others  will  buy,  the 


«88  THE  FLOW  OF  VALUE 

surplus  above  that  which  they  can  sell  to  advan- 
tage will  be  waste. 

The  utilities  they  produce  are  the  results  of  the 
application  of  their  efforts,  and  the  utilities  they 
buy  are  the  results  of  the  application  of  the  efforts 
of  others.  The  results  of  the  application  of  cer- 
tain proportions  of  effort  are  sold,  and  the  results 
of  the  application  of  certain  proportions  of  effort 
are  bought.  Therefore  a  proportion  of  the  effort 
applied  by  one  person  has  given  command  over  a 
proportion  of  the  effort  applied  by  another. 

Let  us  suppose,  by  way  of  illustration,  that  of  a 
certain  population  100  persons  have  advanced  to 
the  exclusive  application  of  their  efforts  in  the 
production  of  Utilities  Nos.  1,  2,  3,  4,  and  5 ;  that 
10  persons  applying  their  effort  10  hours  a  day 
for  30  days  produce  3000  units  of  Utility  No.  1, 
each  person  producing  300  units ;  that  20  persons 
similarly  produce  4000  units  of  Utility  No.  2,  each 
producing  200  units ;  that  30  persons  produce  6000 
units  of  Utility  No.  3,  each  producing  200  units; 
that  25  persons  produce  500  units  of  Utility  No.  4, 
each  producing  20  units ;  that  15  persons  produce 
600  units  of  Utility  No.  5,  each  producing  40  units. 

Upon  the  supposition  that  each  person  applies 
with  the  same  persistency  effort  of  the  same  physi- 
cal and  mental  quality,  and  that  each  person  wants 
utilities  of  each  kind  in  the  same  proportion,  it 
follows  that  each  person  receives  in  return  for  his 
effort  embodied  in  the  utilities  he  produces,  of  the 


SUMMARY,  RESTATEMENT  289 

same  proportion  of  effort  embodied  in  the  produc- 
tion of  other  utilities.    That  is : 


The  effort  applied  in  producing 


300  units  of  Utility  No.  1,  or 

200  units  of  Utility  No,  2,  or 

200  units  of  Utility  No.  3,  or 

20  units  of  Utility  No.  4,  or 

2  units  of  Utility  No.  5, 


is  equivalent  to 
the  effort  ap- 
plied in  produc- 
ing 141  units 
as  follows : 


30  units  of  No.  1, 

40  units  of  No.  2, 

.60  units  of  No.  3, 

6  units  of  No.  4,  and 

6  units  of  No.  5. 


Thus  the  price  of  300  units  of  Utility  No.  1  is 
not  merely  the  141  utilities  of  the  different  kinds, 
and  vice  versa ;  but  the  price  of  the  300  man-hours 
applied  in  producing  300  units  of  Utility  No.  1  is 
the  300  man-hours  applied  in  producing  the  141 
utilities  and  vice  versa. 

It  also  follows  that  to  the  production  of: 

1  unit  of  Utility  No.  1  would  be  required    1      man-hour 
1  unit  of  Utility  No.  2  would  be  required    ly^  man-hours 
1  unit  of  Utility  No.  3  would  be  required    IV2  man-hours 
1  unit  of  Utility  No.  4  would  be  required  15      man-hours 
1  xmit  of  Utility  No.  5  would  be  required    lYg  man-hours 

Therefore,  for  example,  the  price  of  three  Utilities 
No.  1  would  be  two  Utilities  No.  3  and  vice  versa ; 
or  the  price  of  three  man-hours  applied  in  pro- 
ducing three  units  of  Utility  No.  1  would  be  the 
three  man-hours  applied  in  producing  two  units  of 
Utility  No.  3  and  vice  versa. 

As  it  is  the  human  being  who  applies  effort  in 
that  production  which  meets  wants,  and  as  it  is  the 
human  being  who  buys  utilities  produced  for  the 
purpose  of  meeting  wants,  each  measure  of  a  util- 
ity bought  is  reducible  to  the  return  received  for  a 


«90  THE  FLOW  OF  VALUE 

measure  of  effort  applied.    Under  our  supposition 
each  person  applies : 

30  man-hours  or  10  per  cent,  of  his  effort  to  obtain  30  units  of 

Utility  No.  1. 
60  man-hours  or  20  per  cent,  of  his  effort  to  obtain  40  units  of 

Utility  No.  2. 
90  man-hours  or  30  per  cent,  of  his  effort  to  obtain  60  units  of 

Utility  No.  3. 
75  man-hours  or  25  per  cent,  of  his  effort  to  obtain     5  units  of 

Utility  No.  4. 
45  man-hours  or  15  per  cent,  of  his  effort  to  obtain     6  units  of 

Utility  No.  5. 

Thus  we  perceive  that  since  price  is  a  measure  of 
utilities  bought,  and  a  measure  of  utilities  sold, 
and  that  since  all  utilities  are  the  result  of  human 
effort,  the  underlying  significance  of  price  is  that 
it  is  the  equivalent  of  the  proportion  of  effort  that 
is  embodied  in  a  measure  of  utilities  sold,  and  of 
the  proportion  of  effort  embodied  in  a  measure  of 
utilities  bought.  Therefore,  as  in  every  transac- 
tion the  buyer  is  a  seller,  and  the  seller  is  a  buyer, 
price  is  the  equivalent  of  the  respective  propor- 
tions of  effort,  the  results  of  which  are  exchanged. 
There  must  be  a  unit  in  terms  of  which  this  equiva- 
lent may  be  expressed.  As  there  are  innumerable 
gradations  in  the  relations  between  effort  applied 
and  wants  met,  this  unit  must  be  used  in  multiples 
and  in  fractions.  The  dollar  is  such  a  unit.  Man- 
hours  are  bought  and  man-hours  embodied  in  utili- 
ties are  sold,  man-hours  are  sold  and  man-hours 
embodied  in  utilities  are  bought  in  multiples  of  the 
dollar  and  fractions  of  the  dollar,  or  in  measures 


SUMMARY,  RESTATEMENT  291 

indicated  by  both  multiples  and  fractions  of  the 
dollar.  In  different  countries  price  is  expressed 
by  different  units.  If  the  man-hour  have  the  ex- 
change ratio  of  one  shilling,  one  franc,  one  ruble, 
or  one  peseta,  the  15  man-hours  embodied  in  one 
unit  of  Utility  No.  4  would  have  the  exchange 
ratio  of  15  shillings,  15  francs,  15  rubles,  or  15 
pesetas.  If  the  man-hour  have  the  exchange  ratio 
of  one  dollar,  one  unit  of  Utility  No.  4  would  have 
the  exchange  ratio  of  $15. 

If  the  relations  between  effort  applied  and 
wants  met  at  the  time  antecedent  to  that  of  our 
supposition  had  determined  the  price  of  each 
man's  effort  at  $2  per  day,  the  price  of  one  unit  of 
Utility  No.  1  in  which  was  embodied  1  man-hour 
would  be  20  cents ;  of  one  unit  of  Utility  No.  2  in 
which  was  embodied  ly^  man-hours  would  be  30 
cents;  of  one  unit  of  Utility  No.  3  in  which  was 
embodied  II/2  man-hours  would  be  30  cents;  of  one 
unit  of  Utility  No.  4  in  which  was  embodied  15 
man-hours,  $3 ;  and  of  one  unit  of  Utility  No.  5  in 
which  was  embodied  7i/^  man-hours,  $1.50.  Each 
man  would  receive  $60  for  the  thirty  days '  work  of 
10  hours  a  day.  He  would  pay  $6  for  30  units  of 
Utility  No.  1;  $12  for  40  units  of  Utility  No.  2; 
$18  for  60  units  of  Utility  No.  3;  $15  for  5  units 
of  Utility  No.  4;  and  $9  for  6  units  of  Utility  No.  5. 
Inasmuch  as  every  utility  is  the  result  of  the  appli- 
cation of  man-hours,  it  can  not  be  gainsaid  that  it 
is  the  embodiment  of  man-hours  which  is  bought 


292  THE  FLOW  OF  VALUE 

and  sold,  even  though  buyer  and  seller  seldom  or 
never  so  consider  it,  regarding  that  which  is  the 
subject  of  purchase  and  sale  only  as  the  utility 
produced. 

With  the  continuance  of  production,  buying,  and 
selling,  effort  is  applied  in  varying  proportions 
in  the  production  of  different  utilities,  and  the 
wants  for  utilities  produced  are  in  varying  pro- 
portions. These  varying  relations  between  effort 
applied  and  wants  met  cause  variations  in  prices. 
It  is  our  supposition  that  the  efforts  of  the  100 
persons  were  of  the  same  quality,  and  that  they 
were  applied  to  the  maximum  of  that  production 
of  which  each  was  capable.  If  it  came  to  be  that 
there  was  an  increased  proportion  of  effort  re- 
quired in  the  production  of  a  utility  of  one  kind, 
there  would  be  less  of  effort  available  for  the  pro- 
duction of  utilities  of  other  kinds.  Then  there 
would  be  a  reduction  in  the  volume  in  which  that 
utility  was  produced  or  in  the  volumes  in  which 
other  utilities  were  produced.  Or,  if  it  came  to 
be  that  any  utility  was  wanted  in  larger  volume, 
a  greater  proportion  of  effort  would  have  to  be 
applied  in  its  production,  with  the  result  that  there 
would  be  less  of  effort  available  for  the  production 
of  other  utilities.  In  either  event  each  of  the  100 
persons  could  not  obtain  the  same  number  of  units 
of  the  different  utilities  as  before.  On  the  other 
hand,  if  there  was  a  decrease  in  the  proportion  of 
effort  required  in  the  production  of  a  utility  of  one 


SUMMARY,  RESTATEMENT  293 

kind,  or  if  that  utility  was  wanted  in  smaller  vol- 
ume, a  proportion  of  the  effort  previously  applied 
in  its  production  would  not  continue  to  be  so  re- 
quired, and  could  be  devoted  to  other  production. 
If,  for  example,  because  of  a  scant  yield  of  sub- 
stance, which  would  mean  that  a  greater  propor- 
tion of  man-hours  had  been  applied  in  relation  to 
the  volume  of  substance  produced,  or  greater 
difficulty  in  transforming  substance,  which  would 
mean  that  a  greater  number  of  man-hours  were 
applied  in  the  transformation,  there  was  required 
in  the  production  of  one  unit  of  Utility  No.  3,  2 
man-hours  instead  of  II/2,  and  if  the  same  number 
of  persons  continued  in  its  production,  its  volume 
would  be  reduced  and  a  smaller  proportion  of 
wants  would  be  met.  The  production  of  the  same 
volume  of  6000  units  would  require  the  effort  of 
40  persons  instead  of  30,  leaving  available  for  the 
production  of  other  utilities  the  effort  of  60  per- 
sons instead  of  70.  If  only  30  persons  continued 
to  produce  Utility  No.  3  they  would  produce  4500 
units  instead  of  6000  as  before,  each  person  pro- 
ducing 150  units  instead  of  200.  If  each  person 
so  applying  his  effort  was  to  obtain  the  previous 
price  of  30  cents  a  unit,  he  would  receive  $45  in- 
stead of  $60,  and  each  of  the  100  persons  could 
buy  45  units  instead  of  60  units  as  before.  If, 
however,  each  person  producing  Utility  No.  3  was 
to  receive  the  same  total  of  credits  as  before  he 
would  receive  $60  for  150  units  instead  of  200, 


294  THE  FLOW  OF  VALUE 

and  therefore  the  price  would  be  40  cents  instead 
of  30  cents.  But  even  then  there  would  be  only 
45  units  apiece  for  the  100  persons  instead  of  60, 
and  each  person  would  have  less  to  expend  for 
other  utilities.  If  the  100  persons  continued  to 
want  60  units  apiece  and  were  to  enlist  the  efforts 
of  40  persons  in  their  production,  each  person 
would  have  to  pay  40  cents  per  unit  instead  of  30 
cents.  He  would  pay  as  much  for  2  man-hours  as 
he  had  previously  paid  for  I14,  and  the  production 
of  the  other  utilities  would  be  diminished. 

If  no  greater  proportion  of  effort  than  II/2  man- 
hours  continued  to  be  required  in  the  production 
of  1  unit  of  Utility  No.  3,  but  there  was  an  in- 
creased demand;  if,  for  example,  each  person 
wanted  66  units  instead  of  60,  there  would  be  a 
total  demand  for  6600  units  instead  of  6000.  If  no 
more  than  the  30  persons  engaged  in  the  produc- 
tion, and  the  price  was  bid  up,  for  example,  to  40 
cents,  the  result  would  be  that  only  89  persons 
could  buy  the  66  units  apiece,  and  11  persons 
would  be  deprived  of  Utility  No.  3.  If  the  in- 
creased demand  at  40  cents  enlisted  the  effort 
requisite  to  produce  66  units  apiece,  33  persons 
would  engage  in  the  production  instead  of  30. 
There  would  be  fewer  persons  for  the  production 
of  the  other  utilities ;  there  could  not  be  the  same 
supply  for  the  same  number  of  persons.  On  the 
other  hand,  if  there  was  a  diminution  in  the  de- 
mand for  Utilities  No.  3,  so  that,  for  example,  each 


SUMMARY,  RESTATEMENT  295 

person  wanted  57  units  instead  of  60,  the  effort  of 
27  persons  instead  of  30  would  suffice  to  meet  the 
demand.  The  effort  of  3  persons  would  be  dis- 
placed ;  it  would  be  liberated  for  utilization  in  the 
production  of  other  utilities. 

Not  all  persons,  however,  would  continue  to 
apply  effort  of  the  same  quality  with  the  same  re- 
sult. Different  persons  would  have  different  de- 
grees of  advantage  in  obtaining  substance,  and 
different  persons  would  be  of  different  degrees  of 
efficiency  in  transforming  it.  Let  us  suppose  that 
certain  persons  engaged  in  the  production  of  each 
utility  were  enabled  to  increase  their  production 
by  20  per  cent.,  so  that,  for  example ; 

In  the  production  of  Utility  No.  1 

5  persons  would  produce  300  units  each  or  1,500 
5  persona  would  produce  360  units  each  or  1,800, 


3,300  units  No.  1 
In  the  production  of  Utility  No.  2 

10  persons  would  produce  200  units  each  or  2,000 
10  persons  would  produce  240  units  each  or  2,400, 


4,400  units  No.  2 
In  the  production  of  Utility  No.  3 

15  persons  would  produce  200  units  each  or  3,000 
15  persons  would  produce  240  units  each  or  3,G00, 

6,600  units  No.  3 
In  the  production  of  Utility  No.  4 

15  persons  would  produce     20  units  each  or      300 
10  persons  would  produce    24  units  each  or      240, 


540  units  No.  4 


In  the  production  of  Utility  No.  5 

10  persons  would  produce     40  units  each  or      400 
5  persons  would  produce    48  units  each  or     240, 


640  units  No.  5 


a96  THE  FLOW  OF  VALUE 

If  the  demand  of  the  100  persons  continued  to 
be  for  no  more  than  3000  units  of  Utility  No.  1, 
the  five  more  efficient  producers,  in  order  to  sell 
their  product  in  competition  with  the  less  efficient, 
might  offer  it  at  18  cents,  and  thus  each  of  them 
would  receive  $64.80.  Certain  buyers  would  still 
have  to  pay  20  cents  each  for  1200  units,  or  $240. 
This  would  be  only  sufficient  to  maintain  in  pro- 
duction 4  of  the  5  of  the  less  efficient.  The  100 
buyers  would  pay  $1564  for  the  3000  units  instead 
of  $1600;  9  persons  would  be  supported  in  their 
production  instead  of  10.  Similarly  there  might 
be  paid  28  cents  for  2400  units  of  Utility  No.  2, 
and  30  cents  for  1600.  The  efficient  producers 
would  receive  $66.20  apiece  instead  of  $60;  the 
buyers  would  pay  $1152  instead  of  $1200  for  4000 
units,  which  would  be  produced  by  18  persons  in- 
stead of  20.  And  so  also  with  the  other  utilities. 
The  same  totals  of  the  respective  utilities  might 
be  produced  by  91  persons  instead  of  100. 

As  producers  could  not  sell  utilities  except  to 
those  who  could  buy  them,  when  it  came  about  that 
91  persons  produced  Utilities  Nos.  1,  2,  3,  4,  5,  in 
the  volumes  that  had  previously  met  the  wants  of 
100  persons,  not  only  would  there  be  9  fewer  per- 
sons engaged  in  the  production  but  there  would  be 
9  fewer  persons  who  could  buy  the  utilities  pro- 
duced. As  the  utilities  would  be  produced  for  100 
persons,  the  9  persons  displaced  could  apply  their 
efforts  in  the  production  of  other  utilities  for 


SUMMARY,  RESTATEMENT  297 

which  they  could  find  sale,  or  they  might  be  em- 
ployed by  the  eflficient  producers  who  could  pay 
them  with  their  surplus. 

The  foregoing  examples  lead  to  the  deductions 
that  as  a  person's  effort  contributes  in  greater 
degree  to  meeting  the  wants  of  others,  his  wants 
are  met  in  greater  degree  by  the  results  of  the 
efforts  of  others,  and  that  as  a  person's  effort 
contributes  in  less  degree  to  meeting  the  wants  of 
others,  he  receives  in  smaller  degree  of  the  results 
of  the  effort  of  others.  A  proportion  of  effort 
applied  gives  command  over  another  proportion 
of  effort  applied.  The  application  of  a  certain 
number  of  man-hours  of  a  producer  of  utilities 
may  give  him  command  over  a  greater  number  of 
man-hours  of  one  less  efficient,  or  over  a  smaller 
number  of  man-hours  of  one  more  efficient.  As 
man-hours  become  more  effective  they  give  com- 
mand over  a  greater  number  of  man-hours  of  the 
less  effective.  The  man-hours  of  the  progres- 
sively less  effective  give  command  over  smaller 
and  smaller  proportions  of  the  man-hours  of 
others.  The  degrees  in  which  man-hours  applied 
in  the  production  of  a  utility  of  one  kind  give  com- 
mand over  man-hours  applied  in  the  production 
of  utilities  of  other  kinds  find  expression  in  price : 
variations  in  prices  indicate  variations  in  the 
command  of  man-hours  over  man-hours. 

The  effectiveness  of  effort  is  not  to  be  measured 
solely  by  the  relative  volume  of  production.    A 


298  THE  FLOW  OF  VALUE 

person  of  especial  proficiency,  and  specialized  skill 
and  training  in  the  production  of  a  utility  of  un- 
usual quality,  may  in  return  for  the  application 
of  a  given  proportion  of  his  man-hours  receive 
command  over  a  far  greater  proportion  of  the 
man-hours  of  others.  Similarly,  if  a  utility  be 
constituted  of  a  substance  that  is  rare,  or  difficult 
of  attainment,  as  gold,  a  pearl,  or  ivory,  a  success- 
ful prospector,  diver,  or  hunter  may  obtain  in  re- 
turn for  the  proportion  of  his  man-hours  applied 
in  its  production  command  over  far  greater  pro- 
portions of  the  man-hours  of  others. 

Thus  we  perceive  a  distinction  which  may  be 
recognized  by  according  a  differing  significance  to 
** efficiency'*  and  ** effectiveness."  The  efficient 
producer  is  he  who  can  produce  a  greater  volume 
of  utilities  of  a  given  kind  and  quality  in  a  given 
time.  The  effective  producer  is  he  who  can  in 
return  for  his  effort  or  the  results  of  his  effort 
obtain  greater  command  over  the  efforts  of  others ; 
that  is,  the  higher  price.  For  example,  of  two 
persons  of  equal  physical  and  mental  equipment 
and  working  with  equal  persistency,  one  may  pro- 
duce utilities  for  which  the  demand  is  relatively 
low  and  the  other  utilities  for  which  the  demand  is 
relatively  high.  The  former  would  receive  lower 
prices  for  his  product  than  the  latter ;  that  is,  less 
command  over  the  effort  of  others.  Thus  these 
two  producers  of  equal  efficiency  would  be  of  un- 
equal effectiveness;  the  man-hour  of  the  latter 


SUMMARY,  RESTATEMENT  299 

would  bring  greater  command  over  the  man-hours 
of  others  than  the  man-hour  of  the  former. 

A  man,  whatever  the  degree  of  his  efficiency,  will 
not,  other  things  equal,  apply  his  effort  in  the  pro- 
duction of  a  given  utility  if  he  can  obtain  greater 
reward,  that  is  greater  command  over  the  efforts 
of  others,  by  applying  it  in  the  production  of  an- 
other utility.  Therefore  the  tendency  is  for  the 
available  aggregate  of  effort  to  become  appor- 
tioned in  the  production  of  the  utilities  of  the  dif- 
ferent kinds,  so  that  persons  of  equivalent  effi- 
ciency tend  toward  equivalent  effectiveness.  This 
is  true,  notwithstanding  that  in  the  actual  proc- 
esses of  industry  and  commerce  the  working  of 
this  tendency  to  this  end  is  often  interrupted  and 
impaired. 

Production  by  Organizations  of  Employer  and 
Employees 

There  are  the  internal  wants  of  the  body  which 
are  met  by  the  pabulum  that  passes  through  the 
mouth;  there  are  the  external  wants  of  the  body 
for  immediate  protection  that  are  met  by  the  vari- 
ous articles  of  apparel,  and  for  less  immediate 
protection  that  are  met  by  various  forms  of  shel- 
ter with  light,  heat,  and  other  accompaniments. 
There  are  divers  wants  of  the  senses  and  the  intel- 
lect. As  with  extending  knowledge  the  wants  of 
the  body,  the  senses,  and  the  intellect  develop, 
there  come  to  be  those  who  seek  to  obtain  satisfac- 


SOO  THE  FLOW  OF  VALUE 

tion  of  their  own  wants  by  supplying  these  devel- 
oping wants  of  others.  Individuals,  and  organiza- 
tions of  employer  and  employee,  will  specialize  in 
every  phase  of  production  that  leads  to  the  pro- 
duction of  final  utilities — in  particular  phases  of 
producing  substance,  of  transforming  substance 
into  intermediate  utilities,  and  of  transforming 
intermediate  utilities  into  a  variety  of  final  utili- 
ties. After  industrial  and  commercial  develop- 
ment has  passed  the  earlier  stages  there  is  always 
such  specialization.  To  the  production  of  final 
utilities  at  the  place  where  they  pass  into  the  pos- 
session of  the  final  purchasers  is  involved  the  ap- 
plication of  effort  in  a  series  of  processes,  the 
application  of  infinite  subdivisions  of  the  effort  of 
innumerable  persons.  This  application  in  in- 
creasing degree  comes  to  be  through  organizations 
of  employer  and  employees. 

The  apportionment  of  effort  in  its  divisions  and 
subdivisions  in  various  phases  and  various  stages 
of  production  is  determined  by  the  elementary 
principle  that,  in  seeking  to  satisfy  their  wants, 
men  will  part  with  as  little  as  they  can  to  obtain 
that  which  they  want,  and  will  obtain  as  much  as 
they  can  for  that  with  which  they  part.  If  a  man 
can  obtain  more  by  applying  his  effort  as  an  indi- 
vidual producer  and  selling  his  product  than  by 
working  for  wage,  he  will  so  apply  his  effort;  if 
he  can  obtain  more  by  working  for  wage  he  will 
do  so ;  if  he  can  obtain  more  by  applying  his  effort 


SUMMARY,  RESTATEMENT  301 

in  directing  and  coordinating  the  efforts  of  others 
and  selling  the  results  of  their  combined  efforts, 
he  will  be  an  employer.  Thus  it  is  that,  as  a  rule, 
a  man  will  seek  to  apply  his  effort  in  the  way  that 
will  lead  to  the  greatest  degree  of  satisfaction  of 
his  desires. 

The  manner  of  the  application  that  will  lead  to 
that  satisfaction  is  determined  by  the  extent  to 
which  others  want  the  results  of  his  effort.  There 
are  limits  to  the  range  of  production  in  which  any 
person  may  apply  his  efforts,  but  within  that 
range  each  person  will  seek  to  apply  them  in  the 
way  that  will  give  him  the  greatest  measure  of 
return.  As  those  who  have  the  inclination  and 
the  capacity  to  become  employers  are  relatively 
few  in  relation  to  those  without  the  capacity  or 
without  the  inclination,  the  proportion  of  employ- 
ers is  far  less  than  the  proportion  of  those  who 
work  for  wages. 

When  production  is  through  the  coordination  of 
effort  by  organizations  of  employer  and  employees, 
effort  is  applied  and  coordinated  under  the  direc- 
tion of  the  employers.  They  are  responsible  for 
its  application  in  the  production  of  utilities,  and 
they  are  responsible  for  the  sale  of  the  utilities 
produced.  Each  organization  applies  force-units 
resulting  from  the  man-hours  of  employer  and 
employee.  All  of  the  man-hours  applied  in  pro- 
duction, whether  of  employer  or  employee,  are 
applied  toward  the  production  of  final  utilities. 


S02.  THE  FLOW  OF  VALUE 

In  the  total  volume  of  a  final  utility  of  any  kind  is 
embodied  the  total  man-hours  applied  toward  its 
production :  in  the  aggregate  volume  of  final  utili- 
ties of  all  kinds  is  embodied  the  aggregate  of  man- 
hours  applied  toward  their  production. 

The  employee  sells  man-hours.  The  employer 
sells  the  results  of  the  man-hours  applied  by  him- 
self and  his  employees  to  and  through  the  utilities 
which  he  utilizes  in  production,  and  these  utilities 
have  been  produced  by  the  application  of  man- 
hours  in  the  past.  Therefore,  the  employer  sells 
the  results  of  the  application  of  a  total  of  man- 
hours. 

The  utilities  which  the  employee  buys  are 
bought  with  his  man-hours,  or  rather  with  the 
credits  he  receives  in  return  for  applying  his  man- 
hours.  The  utilities  which  the  employer  buys, 
whether  man-hours  immediately  applied,  or  the 
results  of  man-hours  to  which  they  are  applied, 
are  bought  with  the  results  of  the  application  of 
man-hours,  or  rather  with  the  credits  he  receives 
in  return  for  the  sale  of  such  results. 

As  it  is  the  man-hours  available  in  the  present 
which  must  be  applied  toward  future  production, 
and  it  is  only  by  final  utilities  that  are  maintained 
the  man-days  from  which  man-hours  emanate,  it 
follows  that  the  results  of  man-hours  applied  in  the 
past  in  the  form  of  final  utilities  must  pay  for  the 
man-hours  applied  in  the  present  toward  the  pro- 
duction of  final  utilities.    Therefore,  whatever  be 


SUMMARY,  RESTATEMExNT  303 

the  intervening  phenomena  in  effectuating  pay- 
ment, it  essentially  is  that  in  the  continuity  of 
production  the  results  of  man-hours  applied  in 
the  past  pay  for  man-hours  applied  in  the  present, 
and  man-hours  applied  in  the  present  pay  for  the 
results  of  man-hours  applied  in  the  past.  And  so 
also  the  results  of  man-hours  applied  in  the  pres- 
ent will  pay  for  man-hours  applied  in  the  future. 
Therefore,  it  ultimately  is  that  man-hours  applied 
in  the  past  pay  for  man-hours  applied  in  the  pres- 
ent, and  that  man-hours  applied  in  the  present  pay 
for  man-hours  applied  in  the  future. 

Man-hours  and  Want-units 

As  the  payment  of  man-hours  for  man-hours  is 
effected  by  final  utilities,  the  ultimate  significance 
of  the  dollar  is  the  relation  of  the  effort  put  forth 
by  the  individual  to  the  wants  of  the  individual; 
that  is,  the  relation  of  man-hours  to  want-units. 
If  a  man  will  not  expend  any  portion  of  the  dollars 
received  by  him  for  want-units  of  a  given  kind, 
want-units  of  that  kind  will  not  give  command 
over  any  portion  of  his  man-hours.  If  want-units 
of  a  given  kind  can  not  be  sold  for  any  proportion 
of  man-hours,  they  will  have  no  ratio  to  the  dollar. 
If  the  total  volume  of  a  utility  of  any  kind  can  not 
be  sold  for  a  number  of  dollars  equivalent  to  that 
expended  for  the  man-hours  applied  in  its  produc- 
tion, the  production  of  that  utility  will  diminish; 
fewer  man-hours  will  be  applied  in  the  transf orma- 


304  THE  FLOW  OF  VALUE 

tion  of  intermediate  utilities  into  that  final  utility; 
fewer  man-hours  will  be  applied  in  the  transforma- 
tion of  substance  into  intermediate  utilities  for 
transformation  into  that  final  utility;  and  fewer 
man-hours  will  be  applied  in  the  production  of  sub- 
stance for  transformation  into  intermediate  utili- 
ties for  transformation  into  that  final  utility.  On 
the  other  hand,  if  final  purchasers  pay  a  portion 
of  the  dollars  received  by  them  for  a  final  utility, 
want-units  of  that  kind  give  command  over  a  por- 
tion of  their  man-hours.  There  can  not  be  sold 
more  of  want-units  to-day  than  have  been  pro- 
duced in  the  past.  There  can  not  be  applied  more 
of  man-hours  to-morrow  than  can  be  maintained 
by  the  want-units  in  existence  to-day.  As  all  ef- 
fort applied  in  the  past  has  been  toward  the  pro- 
duction of  final  utilities,  and  the  tendency  has  been 
toward  the  production  of  a  larger  volume  in  rela- 
tion to  the  effort  applied,  it  follows  that  the  wants 
essential  to  the  application  of  productive  effort  by 
all  whose  efforts  are  required  in  production  can 
adequately  be  met  unless  the  application  of  effort 
in  the  past  has  been  out  of  proportion,  or  unless 
there  has  been  a  sudden  and  overwhelming  de- 
struction of  utilities  produced,  or  unless  there  has 
been  a  sudden  and  overwhelming  increase  in  the 
population  whose  wants  must  be  supplied  by  the 
utilities  produced. 

All  of  dollars  to  credit  have  been  derived  from 
the  sale  of  njan-hours  in  the  past,  or  from  the 


SUMMARY,  RESTATEMENT  305 

sale  of  the  results  of  man-hours  applied  in  the 
past,  at  ratios  to  the  dollar  that  have  been  deter- 
mined by  interrelations  between  supply  and  de- 
mand at  the  time  of  sale.  The  measures  of  want- 
units  which  will  have  the  exchange  ratio  of  a  dol- 
lar at  a  future  time  will  be  determined  by  the  inter- 
relations between  the  supply  of  and  the  demand 
for  want-units  of  the  various  kinds  at  that  time. 
The  measures  of  man-hours  which  will  have  the 
exchange  ratio  of  a  dollar  at  a  future  time  will  be 
determined  by  the  interrelations  between  the  sup- 
ply of  and  demand  at  that  time  for  effort  of  the 
various  grades  of  eflSciency  to*  be  applied  in  the 
respective  phases  of  production. 

If  there  are  a  greater  number  of  man-hours,  in 
relation  to  the  demand  for  them,  seeking  sale  at 
one  time  than  at  the  preceding  time;  that  is,  if 
there  are  a  greater  number  of  wage-workers  seek- 
ing employment  in  relation  to  the  number  the  em- 
plo}^er  wants  to  employ — he  will  endeavor  from 
the  credits  at  his  command  to  pay  fewer  dollars 
as  wages.  If  a  smaller  number  of  wage-workers 
are  seeking  employment  than  the  employer  wants, 
he  may  from  his  credits  be  obliged  to  pay  more 
dollars  as  wages. 

If  with  the  same  number  of  man-hours  for  which 
he  has  paid  a  greater  number  of  dollars  an  em- 
ployer can  produce  no  greater  number  of  want- 
units,  his  cost  of  production  expressed  in  dollars 
will  be  increased.    If  for  the  want-units  produced 


306  THE  FLOW  OF  VALUE 

he  could  obtain  no  higher  price  expressed  in  dol- 
lars, he  would  not  have  command  over  the  same 
number  of  man-hours  in  further  production. 

If  with  the  same  number  of  man-hours  for  which 
he  paid  a  smaller  number  of  dollars  an  employer 
produced  the  same  or  a  greater  number  of  want- 
units,  the  cost  of  production  expressed  in  dollars 
would  be  diminished.  If  for  the  want  units  pro- 
duced he  obtained  the  same  or  a  higher  price  ex- 
pressed in  dollars,  he  would  receive  command  over 
a  greater  number  of  man-hours  to  be  applied  in 
future  production. 

Essentially  the  "employee  sells  man-hours  and 
buys  want-units.  If  there  are  a  greater  number 
of  want-units  seeking  sale,  in  relation  to  the 
number  the  employee  wants,  at  one  time  than 
at  the  preceding  time,  he  may  pay  fewer  dollars 
for  the  same  supply  as  before.  The  man-hours 
applied  by  him  have  given  him  greater  command 
over  want-units.  If  a  smaller  number  of  w^nt- 
units,  in  relation  to  the  number  the  employee 
wants,  are  seeking  sale  at  one  time  than  at  a  pre- 
ceding time,  he  may  pay  more  dollars  for  them. 
The  man-hours  applied  by  him  have  given  him  less 
command  over  want-units.  If  for  the  man-hours 
the  employee  sells  at  any  time  he  can  buy  more  of 
want-units  than  at  a  preceding  time,  and  he  does 
not  increase  his  purchase  of  want-units  to  the  full 
extent  of  his  increased  command  over  them,  he  can 
invest  the  remainder  of  his  command  in  produc- 


SUMMARY,  RESTATEMENT  307 

tion  by  others,  and  thus  either  directly  or  indi- 
rectly become  an  employer  himself.  He  has  se- 
cured gain  which  is  of  the  nature  of  profit.  If  for 
the  man-hours  he  sells  at  a  given  time  he  can  not 
obtain  so  many  want-units  as  at  the  preceding 
time,  he  may  be  obliged  to  reduce  his  standard 
of  living.  If  the  want-units  previously  received 
were  no  more  than  necessary  to  maintain  his  vi- 
tality, those  now  received  will  not  be  sufficient  to 
maintain  his  vitality.  Thus  it  is  to  the  advantage 
of  the  employee  that  he  receive  the  greatest  meas- 
ure of  want-units  in  relation  to  his  man-hours, 
and  therefore  that  there  be  the  greatest  volume 
of  production  in  relation  to  the  effort  applied. 

If  there  is  not  an  increase  in  production  in  re- 
lation to  the  effort  applied,  but  the  wage-workers 
in  any  kind  of  production  demand  and  obtain  a 
greater  command  over  want-units,  the  employer 
will  have  to  transfer  to  them  a  greater  proportion 
of  the  credits  received  by  him  from  the  sale  of 
the  utilities  produced.  He,  therefore,  will  not 
have  the  same  command  over  man-hours  to  be 
applied  in  increasing  that  production  or  for  fur- 
thering production  of  other  kinds.  Unless  the 
wage-workers  invest  in  production  a  portion  of 
the  increased  wages,  so  that. the  total  investment 
constituted  of  their  wages  and  employer's  profit  is 
equal  to  the  total  that  otherwise  would  have  been 
invested,  the  production  in  which  their  efforts  are 
applied  will  diminish,  and  many  who  would  other- 


308  THE  FLOW  OF  VALUE 

wise  buy  utilities  of  the  kinds  produced  will  be 
deprived  of  them.  If  the  employers  so  advance 
the  price  expressed  in  dollars  for  utilities  pro- 
duced that  they  obtain  the  same  command  over 
man-hours  as  before,  many  who  had  bought  util- 
ities of  that  kind  would  have  to  diminish  their 
purchases  of  them  or  of  other  utilities.  Thus  the 
wage-workers  engaged  in  the  production  of  other 
utilities  would  be  deprived  because  of  the  advance 
in  the  wages  of  the  wage-workers  engaged  in  the 
production  of  the  utilities  of  those  kinds. 

If,  however,  the  production  of  a  utility  has  in- 
creased in  relation  to  the  number  engaged,  a  given 
number  of  man-hours  has  produced  a  greater  num- 
ber of  want-units.  If  the  production  of  several 
utilities  has  increased  in  relation  to  the  number 
engaged,  there  has  been  an  increase  in  the  want- 
units  of  each  kind  in  relation  to  the  man-hours. 
The  tendency  will  be  for  their  prices  to  fall,  so 
that  the  same  number  of  dollars  can  buy  them  in 
larger  measures.  Moreover,  as  an  increased  vol- 
ume of  want-units  can  maintain  a  greater  number 
of  man-days,  the  effort  of  an  additional  number 
of  persons  can  be  applied  in  the  further  produc- 
tion of  those  utilities  or  in  the  production  of  other 
utilities. 

As  all  productive  effort  is  applied  toward  the 
production  of  final  utilities,  it  is  clear  that  the 
employer  really  buys  man-hours  and  sells  want- 
units.    Want-units,    so    considered,    include    the 


SUMMARY,  RESTATEMENT  309 

units  of  the  earlier  stages  of  production  that  are 
transformed  into  want-units.  With  the  credits 
obtained  for  want-units  sold  the  employer  buys 
man-hours  for  application  toward  the  production 
of  further  want-units.  If  the  same  number  of 
man-hours  is  required  to  produce  the  same  vol- 
ume of  want-units,  and  he  does  not  obtain  as  much 
for  the  want-units  sold  as  will  enable  him  to  buy 
the  same  number  of  man-hours  to  be  applied  in 
further  production,  he  has  incurred  loss.  If  for 
the  want-units  sold  he  obtains  more  than  sufficient 
to  buy  the  same  number  of  man-hours  to  be  ap- 
plied in  further  production,  he  has  secured  profit. 
This  means  that  while  the  total  of  man-hours 
paid  by  final  purchasers  for  a  final  utility  pay  for 
all  of  the  man-hours  applied  in  its  production,  the 
total  of  man-hours  paid  may  not  be  the  same  as  the 
total  of  man-hours  applied.  If  tlie  total  of  man- 
hours  applied  exceeds  the  total  of  man-hours  re- 
ceived, employers,  other  things  equal,  have  in- 
curred loss.  If  the  total  of  man-hours  received 
exceeds  the  total  of  man-hours  applied,  employers, 
other  things  equal,  have  received  profit.  This  sur- 
plus of  man-hours,  or  rather  this  increased  com- 
mand over  man-hours,  may  flow  in  different  pro- 
portions to  employers  who  have  produced  the  final 
utility,  to  employers  who  have  produced  the  inter- 
mediate utilities  transformed  into  it,  to  employ- 
ers who  have  produced  the  substance  transformed 
into  the  intermediate  utilities  which  have  been 


310  THE  FLOW  OF  VALUE 

transformed  into  the  final  utility,  to  employers 
who  liave  produced  the  instruments  of  production 
utilized  in  various  stages  of  the  transformation. 

If  an  employer  succeeds  in  reducing  the  ratio 
of  man-hours  applied  to  want-units  produced,  he 
still  must  obtain  as  much  for  the  want-units  sold 
as  will  enable  him  to  buy  the  man-hours  requisite 
to  the  further  production  of  that  volume.  Thus 
the  incurring  of  loss  or  the  securing  of  profit  de- 
pends not  alone  upon  the  ratio  of  man-hours  ap- 
plied to  want-units  produced,  but  upon  what  the 
employer  has  to  pay  for  the  man-hours  and  what 
he  obtains  for  want-units. 

As  a  man  will  not  work  for  wages  if  he  can  ob- 
tain a  greater  total  of  credits  as  an  employer,  an 
employer  may  debit  his  total  of  credits  not  only 
with  the  wages  he  pays  his  employees,  but  with 
wages  for  himself  in  the  amount  he  could  receive 
as  an  employee.  The  surplus  of  credits  over  his 
total  of  debits  will  be  his  profit.  He  will  not  con- 
tinue in  production  as  an  employer  unless  he  can 
obtain  credits  over  and  above  what  he  could  earn 
as  wages. 

As  a  population  is  of  lower  average  eflSciency  in 
production,  the  fewer  will  be  the  want-units  in 
relation  to  the  man-hours  applied.  As  its  aver- 
age efficiency  increases  there  will  be  a  greater 
number  of  want-units  in  relation  to  the  man-hours 
applied.  As  the  supply  of  utilities  increases  in 
greater  proportion  than  those   seeking  employ- 


SUMMARY,  RESTATEMENT  311 

ment,  even  the  least  eflBcient  wage-workers  will 
receive  more  of  want-units.  The  greater  the  pro- 
portion of  those  of  low  eflQciency,  the  smaller  will 
be  the  production  of  utilities  and  the  smaller  the 
proportion  received  by  each  person,  especially 
by  the  less  eflScient.  The  greater  the  proportion 
of  those  of  high  eflSciency,  the  greater  will  be  the 
production  of  utilities  and  the  greater  the  propor- 
tion received  by  each  person,  especially  by  the 
more  efficient. 

Rising  and  Falling  Prices 

When  the  seller  obtains  and  the  buyer  pays  a 
greater  number -of  dollars  for  a  given  measure  of 
a  utility  than  theretofore,  its  price  has  risen,  if 
the  ratios  of  other  utilities  to  the  dollar  have  not 
changed.  It  rises  because  the  effort  applied  in 
the  production  of  that  measure  of  that  utility 
has  given  command  over  a  greater  proportion 
than  theretofore  of  effort  applied  in  the  produc- 
tion of  other  utilities.  When  the  seller  obtains 
and  the  buyer  pays  a  smaller  number  of  dollars 
for  a  given  measure  of  a  utility,  its  price  has 
fallen,  if  the  ratios  of  other  utilities  to  the  dollar 
have  not  changed.  It  falls  because  the  effort  ap- 
plied in  the  production  of  that  utility  gives  com- 
mand over  a  smaller  proportion  than  theretofore 
of  effort  applied  in  the  production  of  other  utili- 
ties.. 

A  rise  or  a  fall  in  the  price  of  any  utility  is  a 


312  THE  FLOW  OF  VALUE 

changed  relation  between  the  purchasing  power 
of  the  total  effort  applied  in  the  production  of 
that  utility,  and  the  purchasing  power  of  the  total 
effort  applied  in  the  production  of  other  utili- 
ties. Fluctuations  in  prices,  in  wages,  and  in 
profit  signify  changing  relations  in  the  command 
of  certain  proportions  of  effort  over  other  pro- 
portions of  effort.  If  the  proportions  of  effort 
applied  in  producing  respective  measures  of  sev- 
eral different  utilities  decrease,  a  greater  num- 
ber of  want-units  of  each  kind  will  be  produced 
by  the  same  number  of  man-hours.  Other  things 
equal,  the  price  of  the  man-hours  increases  because 
in  return  for  them  are  received  greater  measures 
of  want-units ;  and,  vice  versa,  the  price  of  a  want- 
unit  decreases  because  it  will  buy  a  smaller  pro- 
portion of  man-hours.  As  man-hours  emanate 
from  the  human  being,  the  higher  their  price, 
measured  by  the  want-units  obtainable  for  them, 
the  greater  may  be  the  kinds  and  proportion  of 
utilities  that  the  human  being  may  purchase.  On 
the  contrary,  if  increased  proportions  of  effort  are 
required  in  the  production  of  respective  measures 
of  several  different  utilities,  a  smaller  number  of 
want-units  of  each  kind  will  be  produced  by  the 
same  number  of  man-hours.  Other  things  equal, 
the  price  of  the  man-hour  falls  because  smaller 
measures  of  want-units  can  be  obtained  for  it, 
and  the  price  of  the  want-unit  rises  because  larger 
measures  of  man-hours  have  to  be  paid  for  it. 


SUMMARY,  RESTATEMENT  313 

If  the  price  of  a  utility  continues  to  rise,  the 
purchases  of  that  utility  will  be  progressively  less 
and  less  as  those  with  a  descending  scale  of  cred- 
its decrease  their  purchases,  or  else  their  pur- 
chases of  other  utilities  will  be  less  and  less. 
They  will  progressively  diminish  their  purchases 
of  those  utilities  which  are  of  the  least  relative  im- 
portance to  them.  Thus  if  the  utility,  the  price  of 
which  has  risen,  be  an  essential  utility,  their  pur- 
chases of  it  may  not  diminish ;  if  it  be  a  less  essen- 
tial utility  their  purchases  of  it  will  diminish.  If 
the  purchases  of  the  least  and  the  less  essential 
utilities  continue  to  diminish,  employers  engaged 
in  their  production  will  discharge  the  less  efficient, 
that  is  the  marginal  employees ;  and  ultimately  the 
least  efficient,  that  is  the  marginal  employers,  will 
be  forced  out  of  their  production. 

A  fall  in  the  price  of  a  utility  may  mean  that 
there  has  been  a  decrease  in  the  number  of  man- 
hours  required  to  produce  one  want-unit,  and 
therefore  a  smaller  number  of  persons  are  re- 
quired in  the  production  of  a  given  volume.  If, 
however,  for  the  volume  so  produced  there  is  the 
same  relative  demand  or  a  greater  relative  de- 
mand, there  may  be  no  diminution  in  the  price 
expressed  in  dollars.  In  this  case  the  results  of 
man-hours  applied  under  the  direction  of  employ- 
ers will  give  them  command  over  a  greater  number 
of  man-hours.  If,  however,  competing  employers 
increase  production  to  the  capacity  of  their  organ- 


S14  THE  FLOW  OF  VALUE 

izations,  competition  between  them  will  reduce  the 
price  expressed  in  dollars,  and  ultimately  there 
will  be  eliminated  the  number  of  persons  in  excess 
of  those  required  to  produce  the  volume  for  which 
there  is  demand  at  prices  that  will  enable  them  to 
continue  in  the  production.  Or  a  fall  in  the  price 
expressed  in  dollars  of  a  utility  may  mean  that 
there  is  a  decreased  demand  in  relation  to  the 
volume  produced,  whether  in  its  production  were 
applied  a  greater  or  a  less  proportion  of  effort 
than  before.  If  the  price  expressed  in  dollars  of 
a  utility  continues  to  fall,  purchases  of  it  may 
increase,  but  at  the  lower  price  expressed  in  dol- 
lars the  credits  to  employers  may  so  decrease 
that  they  can  not  pay  the  same  wages  as  before. 
Less  efficient  employees  will  be  discharged,  and 
ultimately  less  efficient  employers  will  be  driven 
out  of  the  production.  This  will  continue  until 
the  volume  produced  by  the  remaining  employers 
and  employees  brings  the  prices  expressed  in  dol- 
lars that  will  enable  them  to  continue  in  the  pro- 
duction. 

The  Distinction  Between  Capital  and  Labor 

The  employee  supplies  nothing  but  his  man- 
hours.  The  employer  provides  the  means  for  their 
application,  and  directs  and  coordinates  their  ap- 
plication. As  the  employee  will  not  work  for  a 
given  wage  if  he  can  make  a  better  living  other- 
wise, it  is  a  function  of  the  employer  to  provide 


SUMMARY,  RESTATEMENT  315 

means  for  the  application  of  the  effort  of  the 
employee  and  so  to  direct  its  application  that  he 
may  be  enabled  to  pay  him  at  least  as  high  a  wage 
as  he  could  otherwise  obtain.  At  the  same  time 
the  employer  undertakes  to  supply  purchasers  with 
the  utilities  he  produces  at  prices  at  least  as  low 
as  those  at  which  they  could  buy  other  utilities  of 
the  same  kind  and  quality.  That  is,  the  employer 
undertakes  to  provide  his  employees  with  as  great 
command  over  the  efforts  of  others  as  they  could 
otherwise  obtain,  to  sell  the  results  of  effort  to  pur- 
chasers at  prices  as  low  as  those  for  which  they 
could  otherwise  obtain  utilities  of  the  same  kind 
and  quality,  and  to  secure  for  himself  as  profit 
greater  command  over  the  efforts  of  others  than 
he  could  otherwise  secure.  As  the  extension  of 
specialization  and  coordination  necessarily  means 
an  increase  in  the  proportion  of  production  that 
is  effected  by  organizations  of  employers  and  em- 
ployees, it  follows  that  to  an  increasing  degree  it 
becomes  the  function  of  the  employer  not  only  to 
provide  the  means  for  those  to  apply  their  effort 
who  work  in  the  present,  but  also  to  provide  the 
means  for  those  to  apply  their  effort  who  will  work 
in  the  future. 

The  means  for  the  application  of  effort  provided 
by  the  employer  consist  of  the  results  of  man- 
hours  embodied  in  that  which  is  transformed  into 
final  utilities,  and  in  that  by  means  of  which  the 
transformation  is  effected.     That  is,  the  employer 


816  THE  FLOW  OF  VALUE 

provides  the  results  of  man-hours  applied  in  the 
past  which  are  utilized  in  present  production. 
These  constitute  business  capital,  that  which  is 
commonly  designated  as  capital.  The  man-hours 
applied  in  the  present  for  which  wages  are  paid 
are  labor.  As  all  utilities  are  produced  by  the 
application  of  man-hours  in  the  present  to  and 
through  the  results  of  man-hours  applied  in  the 
past,  it  follows  that  under  the  conditions  of  civil- 
ization there  could  not  be  production  without  the 
application  of  man-hours  in  the  present,  which  is 
labor ;  nor  without  the  utilization  of  the  results  of 
man-hours  applied  in  the  past,  which  is  capital. 
The  greater  the  volume  of  capital  in  relation  to 
labor — that  is,  the  greater  in  relation  to  each  em- 
ployee the  extent  and  productivity  of  sources  of 
substance,  the  greater  the  number  and  capacity 
of  instruments  of  production,  and  the  greater  the 
volume  of  intermediate  utilities — the  greater  may 
be  the  volume  of  final  utilities  to  the  production 
of  which  the  effort  of  each  employee  may  contrib- 
ute, and  therefore  the  greater  the  volume  for  meet- 
ing the  wants  of  all  persons. 

The  employer  is  responsible  for  directing  and 
coordinating  man-hours  applied  in  the  present, 
that  is  labor,  in  application  to  and  through  the  re- 
sults of  man-hours  applied  in  the  past,  that  is 
capital,  toward  the  production  of  utilities  giving 
command  over  a  greater  number  of  man-hours 


SUMMARY,  RESTATEMENT  317 

to  be  applied  in  the  production  of  an  increased 
volume  of  final  utilities  to  meet  the  wants  of  an 
increasing  population;  and  the  employer  is  also 
responsible  for  obtaining  an  increase  of  the  cap- 
ital that  will  enable  this  increased  volume  of  util- 
ities to  be  produced.  The  command  over  man- 
hours  which  enables  this  increased  production  is 
profit. 

Wage  is  return  received  for  man-hours  applied 
in  the  present.  Rent  and  interest  are  return  for 
the  right  to  utilize  the  results  of  man-hours  ap- 
plied in  the  past.  Profit  is  the  surplus  of  credits 
received  over  debits  incurred  in  the  application 
of  man-hours  in  the  present  to  the  results  of  man- 
hours  applied  in  the  past.  Thus  rent  is  profit  to 
the  owner  of  property  that  has  been  leased,  and 
interest  is  profit  to  the  investor  of  accumulated 
credits  upon  security.  But  as  the  profit  of  the 
employer  is  the  surplus  of  credits  received  over 
all  debits  incurred  in  production,  rent  and  inter- 
est are  part  of  his  expense.  His  profit  is  that 
surplus  of  credits  received  over  all  debits  in- 
curred which  gives  command  over  man-hours  to 
be  applied  in  future  production. 

Wage  paid  to  an  employee  for  applying  effort, 
for  the  application  of  which  and  for  the  results 
of  which  the  employer  is  responsible,  differs  from 
the  fee,  which  is  paid  for  service,  the  responsibil- 
ity for  which  rests  with  him  who  renders  it ;  and 


318  THE  FLOW  OF  VALUE 

it  differs  from  the  salary,  which  is  paid  by  the 
investors  of  capital  to  those  who  direct  and  are 
responsible  for  its  utilization. 

Upon  the  efficiency  and  effectiveness  of  employ- 
ers depends  the  payment  of  wages,  the  adequate 
and  satisfactory  meeting  of  the  wants  of  all  per- 
sons, and  also  the  return  upon  his  investment 
that  accrues  to  the  investor. 

The  Securing  of  Profit 

Toward  securing  the  greater  profit  the  employer 
will  endeavor  to  dispose  of  the  total  volume  of  his 
product  for  the  number  of  dollars  that  will  yield 
the  greatest  surplus  over  the  number  of  dollars 
expended  in  its  production.  Other  things  equal, 
the  greater  the  surplus,  the  greater  will  be  his  com- 
mand over  man-hours.  He  may  sell  the  entire 
volume  at  the  same  number  of  dollars  per  unit, 
or  he  may  obtain  a  greater  number  of  dollars  per 
unit  for  part  of  his  production  than  he  can  obtain 
for  other  parts  of  his  production.  He  may  apply 
the  total  of  effort  for  which  he  pays  wages  in  pro- 
ducing a  utility  of  one  kind  and  one  grade,  or  in 
producing  a  utility  of  one  kind  in  various  grades, 
or  in  producing  different  kinds  of  utilities  per- 
haps of  various  grades,  which  he  may  sell  at  dif- 
ferent prices  expressed  in  dollars  per  unit  to  va- 
rious purchasers.  This  means  that  an  employer 
will  desire  buyers  for  every  want-unit  he  produces 
at  that  price  in  dollars  which  will  augment  his 


SUMMARY,  RESTATEMENT  319 

profit.  Therefore  as  the  volume  of  production  in- 
creases in  relation  to  the  effort  applied,  utilities 
of  the  various  grades  may  be  sold  at  the  decreas- 
ing prices  in  dollars  per  unit  that  enable  them  to 
be  purchased  farther  and  farther  down  the  de- 
scending scale  of  incomes. 

The  employer  will  estimate  as  nearly  as  he  can 
the  debits  incurred  per  unit  for  each  grade  of  the 
utilities  produced,  and  thus  will  arrive  at  the 
average  cost  per  unit  of  production.  If  he  can 
sell  one  grade  at  a  price  that  will  give  him  a 
greater  margin  over  the  cost  of  production  than 
the  price  he  obtains  for  other  grades,  he  will  ex- 
pand his  production  of  that  grade  until  the  price 
so  declines  that  it  gives  him  no  greater  margin 
than  he  obtains  from  the  sale  of  other  grades. 
He  will  endeavor  to  produce  various  grades  in  the 
respective  volumes  for  which  he  obtains  the  prices 
that  yield  the  greatest  margin  over  the  cost  of 
production.  As  the  demand  for  any  particular 
grade  so  diminishes  that  the  price  does  not  yield 
a  margin  over  the  cost  of  production,  he  will  dis- 
continue that  grade.  As  different  employers  come 
to  be  more  eflficient  in  producing  a  utility  of  a 
particular  grade,  they  will  obtain  a  higher  margin 
of  profit  than  those  less  efficient  and  thus  will  be 
led  to  increase  their  volume  of  production  of  that 
grade.  Thus  there  will  come  to  be  specialization 
in  the  production  of  the  respective  grades.  This 
specialization  may  be  under  the  direction  of  one 


320  THE  FLOW  OF  VALUE 

employer  who  pays  a  salary  to  a  manager  in 
charge  of  each  phase  of  specialization,  or  a  par- 
ticular phase  may  be  under  the  direction  of  a 
separate  employer. 

To  the  extent  that  the  dollars  obtained  for  each 
increment  of  production  enhance  their  profit,  em- 
ployers will  seek  to  increase  their  production.  To 
this  end  they  will  increase  the  number  of  their 
employees.  While  it  is  those  who  are  most  eflB- 
cient  in  directing  and  coordinating  the  efforts  of 
others  who  contribute  in  greatest  degree  to  the 
volume  of  production  and  therefore,  other  things 
equal,  to  profit,  it  is  also  true  that  there  are  essen- 
tial the  employees  whose  efforts  are  directed  and 
coordinated.  Therefore  as  long  as  increases  in 
the  volume  of  production  enhance  profit,  the  em- 
ployer will  increase  the  number  of  his  employees, 
not  only  by  securing  the  services  of  those  who 
direct  and  coordinate  but  of  that  number  whose 
efforts  can  be  directed  and  coordinated  by  them  to 
advantage.  Thus  as  an  increased  volume  sold  at 
a  descending  scale  of  prices  enhances  his  profit, 
such  an  increase  tends  not  only  to  place  a  utility 
within  the  reach  of  those  of  lower  and  lower  in- 
comes, but  it  tends  also  to  give  employment  to 
a  greater  and  a  greater  number  not  only  of  the 
more  efficient  but  of  the  less  efficient  employees. 

At  equal  wages,  the  employer  will  desire  the 
services  of  the  more  efficient  employee.  Or  he 
may  pay  the  more  efficient  a  higher  wage  than  the 


SUMMARY,  RESTATEMENT  321 

less  eflficient,  especially  if  the  efficiency  be  in 
greater  ratio  than  the  wage.  If  the  efforts  of  two 
men  are  more  efficient  than  those  of  three  other 
men,  or  if  the  efforts  of  three  men  are  more  effi- 
cient than  those  of  five  other  men,  the  employer 
will  at  the  same  rate  of  wages  employ  the  two 
men  instead  of  the  three,  the  three  instead  of  the 
five.  Or  he  may  be  willing  to  pay  a  higher  rate 
of  wages  to  the  two  men  than  to  the  three,  or  to 
the  three  than  to  the  five.  To  one  with  the  ca- 
pacity for  directing  and  coordinating  the  efforts 
of  others  he  may  be  willing  to  pay  a  wage  com- 
mensurate with  the  increase  in  the  volume  of  pro- 
duction due  to  his  efforts.  The  wages  paid  em- 
ployees of  whatever  grade  of  efficiency  must  en- 
able them  to  buy  want-units  of  various  kinds  in 
various  proportions.  If  the  number  of  employees 
of  any  grade  of  efficiency  is  so  large  that  they  will 
be  obliged  to  work  for  the  lowest  wage  that  will 
maintain  their  vitality,  employers  will  pay  them 
that  wage.  The  want-units  they  buy  will  be  of  the 
essential  utilities  in  their  crudest  and  simplest 
forms,  and  they  will  pay  for  them  the  fewest  dol- 
lars for  which  they  can  be  obtained.  Employers 
will  sell  these  utilities  in  their  crudest  and  simplest 
forms  at  the  lowest  prices  expressed  in  dollars 
which  will  enhance  their  profit.  That  is,  mar- 
ginal employees  will  receive  marginal  wages,  and 
will  obtain  marginal  utilities  at  marginal  prices. 
Through    specialization    and    coordination    evea 


322  THE  FLOW  OF  VALUE 

these  marginal  utilities  can  be  produced  in  in- 
creasing volume  in  relation  to  the  effort  applied 
in  their  production.  As  organizations  of  em- 
ployer and  employees  can  utilize  substance  which 
otherwise  would  be  wasted,  in  the  production  of 
crude  and  simple  utilities,  they  may  find  that  the 
effort  required  in  their  production  is  but  a  slight 
addition  to  the  effort  which  they  apply  in  the 
production  of  similar  utilities  of  higher  grades. 

As  every  person  capable  of  applying  his  effort 
in  production  can  contribute  toward  meeting  the 
wants  of  others,  and  has  wants  that  can  be  met 
by  the  efforts  of  others,  it  follows  that  if  at  all 
times  the  aggregate  of  the  available  effort  were 
so  apportioned  that  each  person  contributed  to 
the  production  of  utilities  which  others  wanted, 
he  would  in  exchange  for  the  results  of  his  effort 
receive  of  the  results  of  the  efforts  of  others  which 
he  wanted,  and  therefore  no  one  able  to  work 
would  need  to  be  without  employment.  In  periods 
of  prosperity  there  is  a  close  approximation  to 
such  an  equilibrium:  it  is  otherwise  in  periods 
of  depression. 

As  profit  of  employers  and  savings  of  em- 
ployees, which  are  of  the  nature  of  profit,  are 
exerted  in  command  over  man-hours  in  further 
production,  the  greater  may  be  the  volume  and 
variety  of  final  utilities  produced,  and  the  greater 
may  be  the  number  and  capacity  of  instruments 
of  production  by  means  of  which  final  utilities  in 


SUMMARY,  RESTATEMENT  323 

augmented  volume  and  variety  may  be  produced. 
As  with  extending  knowledge  there  is  the  inven- 
tion and  construction  of  more  efficient  instruments 
of  production,  yet  the  greater  is  the  volume  and 
variety  of  final  utilities  that  may  be  produced  in 
relation  to  the  effort  applied  in  production,  and 
thus  the  greater  the  command  over  final  utilities 
that  may  pass  to  all  who  so  apply  their  effort. 

The  greater  the  volume  and  variety  of  final 
utilities  produced  in  relation  to  the  effort  applied, 
the  greater  is  the  proportion  of  final  utilities  that 
may  be  devoted  to  the  maintenance  of  those  who 
prepare  the  coming  generation  for  future  useful- 
ness, of  those  who  practise  the  professions  and  the 
arts,  of  those  who  engage  in  the  extension  of 
knowledge  and  in  giving  that  extended  knowledge 
application  toward  the  welfare  of  mankind. 

The  greater  the  volume  and  variety  of  final 
utilities  produced  in  relation  to  the  effort  applied, 
the  greater  may  be  the  number  of  the  helpless,  the 
aged  and  the  infirm  who  may  be  maintained  and 
the  comfort  in  which  they  may  be  maintained ;  the 
greater  may  be  the  number  of  the  worthy  in- 
digent, and  of  the  unworthy  indigent,  of  the  phys- 
ically, mentally,  and  the  morally  defective  who 
may  be  maintained. 

The  greater  the  volume  and  variety  of  final 
utilities  produced  in  relation  to  the  effort  applied, 
the  greater  the  return  that  may  pass  as  rent,  in- 
terest, or  profit  for  the  right  to  the  utilization 


324  THE  FLOW  OF  VALUE 

of  accumulated  credits,  even  to  those  who  do  not 
apply  their  efforts  in  production.  They  may  lead 
lives  of  usefulness,  even  of  surpassing  usefulness, 
because  of  freedom  from  the  cares  of  making  a 
living,  or  they  may  lead  lives  of  unworthy  in- 
dulgence. 

When  Each  Person  Receives  of  the  Results  of  the 
Effort  of  Others  in  the  Proportion  That  He 
Contributes  to  Meeting  the  Wants  of  Others, 
He  is  Not  Depriving  Another  if,  Because  of 
Contributing  in  Greater  Degree,  He  Receives 
Greater  Reward 

When  an  individual  producer  sells  the  results 
of  his  efforts  he  obtains  as  much  as  he  can  for 
them.  This  means  that  he  sells  the  results  of  his 
efforts  to  the  buyer  who  will  pay  at  least  as  much 
for  them  as  he  could  obtain  from  any  other  buyer. 
If  one  individual  produces  more  things  of  a  kind 
than  another  and  obtains  more  for  his  larger  total 
of  production  than  the  less  efficient  obtains  for  his 
smaller  total  of  production,  he  is  not  depriving 
the  less  efficient  producer.  His  man-hours  have 
resulted  in  the  production  of  a  greater  number 
of  want-units  of  that  kind  for  which  he  receives 
a  greater  command  over  want-units  of  other  kinds, 
and  therefore  over  a  greater  proportion  of  the 
effort  of  others,  over  a  greater  number  of  man- 
hours.  If  one  individual  produces  things  of  a 
kind    that    are    wanted    more    than    things    of 


SUMMARY,  RESTATEMENT  325 

another  kind  produced  by  another  individual,  and 
he  therefore  obtains  greater  command  over  util- 
ities in  exchange  for  them,  he  is  not  depriving  the 
less  effective  producer.  He  has  contributed  in 
greater  degree  toward  meeting  the  wants  of 
others.  His  man-hours  have  resulted  in  the  pro- 
duction of  want-units  of  a  kind  for  which  buyers 
are  willing  to  pay  more  than  for  the  want-units 
produced  by  the  less  effective.  Thus  in  return 
for  these  want-units  he  receives  a  greater  com- 
mand over  want-units,  a  greater  command  over 
man-hours.  It  is  likewise  with  organizations  of 
employer  and  employees.  When  an  employee  re- 
ceives as  much  for  his  efforts  as  any  employer 
will  pay  he  has  sold  his  man-hours  for  as  much 
as  can  be  obtained  for  them,  and  the  employer  has 
paid  as  much  as  he  would  pay  any  one  for  man- 
hours  of  similar  quality  and  eflSciency.  If  another 
employee  of  greater  efficiency  receives  more  for 
his  man-hours,  the  less  efficient  employee  has  not 
been  deprived.  He  has  received  for  his  efforts  the 
most  that  any  one  would  pay  him.  Likewise  if 
an  employee,  wliose  efforts  are  of  a  quality  which 
causes  them  to  be  wanted  more  than  the  efforts 
of  another,  and  if  an  employer  is  willing  to  pay 
more  for  his  efforts  than  for  the  efforts  of  the 
other,  the  other  is  not  being  deprived. 

If  an  employer  receive  more  for  the  utilities 
for  the  production  of  which  he  is  responsible  than 
is  required  to  pay  the  wages  of  his  employees,  no 


326  THE  FLOW  OF  VALUE 

one  of  his  employees  is  being  deprived,  provided 
the  wage  he  receives  is  as  high  as  another  em- 
ployer would  pay  him.  The  employer  has  secured 
profit,  not  by  depriving  his  employees,  but  by 
directing  and  coordinating  their  efforts  to  more 
effective  results  than  otherwise  could  be  obtained. 

If  an  employer  so  directs  and  coordinates  the 
efforts  of  his  employees  that  he  produces  a  greater 
volume  of  utilities  of  a  given  kind  in  relation  to 
the  effort  applied  than  does  another  employer, 
and  he  therefore  receives  a  greater  total  of  cred- 
its, he  is  not  depriving  the  other  employer.  Be- 
cause of  his  greater  efficiency  he  obtains  greater 
profit.  He  has  contributed  in  greater  measure  to- 
ward meeting  the  wants  of  others  and  has  received 
greater  return. 

If  an  employer  so  directs  and  coordinates  the 
efforts  of  his  employees  in  the  production  of  util- 
ities of  a  kind  that  are  wanted  more  than  utilities 
of  another  kind,  even  though  produced  by  the 
same  total  of  man-hours  of  the  same  efficiency, 
and  he  therefore  receives  more  for  them,  he  is  not 
depriving  the  other  employer.  He  has  been  re- 
sponsible for  producing  utilities  that  contribute 
in  greater  degree  toward  meeting  the  wants  of 
others,  and  therefore  receives  greater  return  for 
the  effort  applied  in  their  production.  If  from  a 
source  of  substance  a  producer  can  obtain  so  much 
greater  yield  in  relation  to  the  man-hours  applied 
than  can  be  obtained  from  another  source  of  sub- 


SUMMARY,  RESTATEMENT  327 

stance  by  another  producer  whose  substance  is 
required,  he  will  at  the  same  price  per  unit  or 
for  the  total  volume  of  substance  receive  greater 
command  over  man-hours  than  the  other  producer, 
who  is  not  thereby  being  deprived. 

If  through  the  utilization  of  an  instrument  of 
production  can  be  produced  a  greater  volume  of 
intermediate  utilities  or  of  final  utilities  for  which 
can  be  obtained  the  same  price  per  unit  or  a 
greater  price  for  the  total  volume,  than  can  be 
obtained  through  the  utilization  of  another  instru- 
ment of  production  whose  product  is  required,  the 
owner  will  receive  greater  command  over  man- 
hours  than  the  other  producer,  who  is  not  thereby 
being  deprived. 

When,  under  conditions  that  impose  no  ham- 
pering restrictions  upon  production,  buying,  and 
selling,  the  employer  obtains  profit,  he  is  not  de- 
priving the  purchasers  of  utilities.  That  which 
all  buyers  pay  for  final  utilities  is  command  over 
man-hours.  The  employer  seeks  to  produce  util- 
ities with  the  application  of  fewer  man-hours  than 
those  over  which  he  has  command,  to  obtain  com- 
mand over  a  greater  number  of  man-hours  than 
he  has  applied.  When  through  the  efficient  direc- 
tion and  coordination  of  the  application  of  effort 
he  succeeds  in  so  doing,  he  has  obtained  profit. 
This  increasing  command  over  man-hours  is  due 
to  the  efforts  of  the  employers  who  produce  util- 
ities, and  not  to  those  who  buy  the  utilities  pro- 


THE  FLOW  OF  VALUE 

duced.  When  all  of  those  immediately  applying 
their  effort  in  production  under  conditions  that 
impose  no  hampering  restrictions  upon  produc- 
tion, buying,  and  selling  obtain  for  their  man- 
hours  that  return  which  is  determined  by  the  in- 
terrelations between  supply  and  demand,  they 
have  obtained  the  fullest  command  over  final  util- 
ities which  any  one  will  pay  them.  When  the 
employer  saves  man-hours  in  production  they  are 
not  being  deprived,  nor  are  they  being  deprived 
because  of  the  proportion  of  the  man-hours  saved 
that  passes  as  profit,  rent,  or  interest.  There- 
fore they  are  not  being  deprived  when  command 
over  man-hours  thus  obtained  is  expended  for 
final  utilities.  The  portion  of  the  command  over 
man-hours  thus  accruing  that  is  reinvested  in  pro- 
duction passes  to  those  immediately  applying 
their  effort,  who  thus  benefit  because  of  the  man- 
hours  saved  by  the  employers.  When  employers 
by  increasing  eflQciency  produce  a  greater  volume 
of  utilities  in  relation  to  the  effort  applied,  they 
are  meeting  the  wants  of  a  greater  number  of  per- 
sons with  less  expenditure.  They  are  liberating 
effort  which,  by  means  of  the  profit  attained,  may 
be  applied  in  increasing  production,  to  the  end 
that  there  may  be  final  utilities  in  greater  volume 
and  greater  variety  to  meet  the  wants  of  a  greater 
number  of  final  purchasers. 

It  is  evident  that  the  converse  of  the  foregoing 
proportions  is  also  true.    If  an  individual  pro- 


SUMMARY,  RESTATEMENT  329 

ducer  is  paid  more  for  the  utilities  he  produces 
than  that  for  which  such  utilities  could  be  obtained 
from  another;  if  an  employee  is  paid  more  for 
his  man-hours  than  that  for  which  man-hours  of 
the  same  quality  could  be  procured  from  another; 
if  an  employer  is  paid  more  for  utilities  than  that 
for  which  utilities  of  the  same  kind  and  quality 
could  be  obtained  from  another,  the  cost  of  utili- 
ties, other  things  equal,  has  been  unduly  increased. 
Therefore  all  purchasers  of  such  utilities  are  de- 
prived because  of  paying  higher  prices  than  are 
necessary  to  enlist  the  effort  needful  to  the  pro- 
duction of  the  volume  requisite  to  meet  their 
wants.  When  higher  prices  caused  by  undue  cost 
of  production  apply  to  utilities  of  general  and 
universal  need  the  entire  population  is  thus  de- 
prived. 

The  Value  of  a  Utility  Utilized  in  Production  De- 
pends Upon  the  Return  That  Can  Be  Obtained 
by  Means  of  Its  Utilization 

While  the  buyer  of  a  utility  does  not  take  ac- 
count of  the  man-hours  that  have  been  applied  at 
the  various  stages  of  its  production,  he  is  obliged, 
if  the  utility  is  one,  such  as  a  source  of  substance 
or  an  instrument  of  production,  which  he  utilizes 
in  further  production,  to  take  account  of  all  the 
debits  that  are  incurred  in  that  further  produc- 
tion. Profit,  if  it  be  secured,  is  expressed  by  the 
surplus  of  the  total  of  the  credits  received  over 


330  THE  FLOW  OF  VALUE 

the  total  of  the  debits  incurred  in  that  produc- 
tion. This  surplus  is  return  upon  the  investment 
in  the  utility,  and  in  that  utilized  in  connection 
with  it.  The  employer  endeavors  to  obtain  profit 
upon  the  total  of  the  wages  he  has  paid,  therefore 
upon  the  wage  paid  each  employee,  and  thus  upon 
the  man-hours  applied  by  each  employee.  He  en- 
deavors to  obtain  profit  upon  the  total  of  expendi- 
ture for  all  else  that  he  utilizes,  and  therefore 
upon  each  portion  of  that  which  he  utilizes. 
Though  he  may  not  be  able  to  allocate  any  propor- 
tion of  profit  to  any  particular  utility  in  accord- 
ance with  the  degree  to  which  its  utilization  has 
contributed  to  profit,  he  can  allocate  the  profit  in 
accordance  with  what  he  has  paid  for  each  utility. 
Suppose,  for  example,  that  an  employer  has  util- 
ized a  source  of  substance  in  the  production  of 
1000  units  of  a  utility  for  sale ;  that  in  the  utiliza- 
tion he  has  paid  as  wages  $100,  for  substance 
$100,  for  incidental  expenses  $20 ;  and  that  he  sells 
these  1000  units  for  30  cents  a  unit  or  $300.  His 
profit  is  $80.  In  strict  significance  this  would  be 
the  gross  profit,  which  would  be  diminished  by 
that  portion  which  must  be  applied  toward  main- 
taining the  source  of  substance  in  as  good  condi- 
tion as  before  the  utilization.  The  cost  of  produc- 
tion has  been  22  cents  a  unit — 10  cents  for  wages, 
10  cents  for  substance  and  2  cents  for  incidental 
expense.  His  profit  would  be  8  cents  per  unit, 
under  the  assumption  that  he  made  no  allowance 


SUMMARY,  RESTATEMENT  331 

for  wage  for  himself.  His  profit  per  unit  of  prod- 
uct sold  in  accordance  with  these  expenditures 
would  be  3.64  cents  on  wages,  3.64  cents  on  sub- 
stance, and  .72  cents  on  incidentals.  If  he  had 
been  obliged  to  pay  $120  for  substance,  his  profit 
would  have  been  $60  instead  of  $80,  6  cents  a 
unit  instead  of  8  cents.  Allocated  according  to 
expenditures,  this  would  be  profit  per  unit  of  prod- 
uct of  2.5  cents  on  wages,  3  cents  on  substance,  and 
.05  cents  on  incidentals. 

If  the  $100  received  by  the  producer  of  sub- 
stance had  yielded  to  him,  for  example,  profit  of 
$10,  the  higher  price  of  $120  would,  other  things 
equal,  yield  to  him  profit  of  $30.  If  that  sub- 
stance were  Moo  of  his  yield,  and  he  sold  the  entire 
yield  at  the  same  price  per  unit,  he  would  receive 
$12,000.  If  his  cost  of  production  were  in  the 
same  proportion  his  profit  would  be  $3000. 

If,  under  conditions  that  imposed  no  hampering 
restriction  upon  production,  buying,  and  selling, 
there  could  be  obtained  through  the  utilization  of 
that  source  of  substance  a  yield  which  could  be 
sold  for  $12,000,  of  which  $3000  were  profit,  it 
would  be  that  that  substance  was  required  at 
that  price  for  transformation  into  final  utilities 
which  could  be  sold  at  a  price  that  would  enable 
the  attainment  of  that  profit  by  the  producer  of 
that  substance.  So  long  as  that  price  could  be 
obtained  for  such  final  utilities  they  would  not  be 
sold  for  a  lower  price.    If  the  requisite  supply  of 


332  THE  FLOW  OF  VALUE 

substance  could  be  obtained  from  other  producers 
at  a  lower  price,  he  who  bought  such  substance  for 
transformation  would  so  obtain  it.  Profit  would 
accrue  to  him  in  higher  measure,  and,  other  things 
equal,  in  smaller  measure  to  the  producer  of  sub- 
stance. If  competing  producers  produced  such 
final  utilities  in  increasing  supply  in  relation  to 
the  demand,  their  prices  would  fall.  Other  things 
equal,  those  producers  who  could  obtain  substance 
at  lower  prices  could  sell  the  final  utility  at  lower 
prices.  If  competing  producers  of  substance  pro- 
duced an  increasing  supply  in  relation  to  the  de- 
mand, the  price  of  substance  would  fall.  The  pro- 
ducer who  had  obtained  $3000  as  profit  would  be 
obliged  to  reduce  his  price  and,  other  things  equal, 
would  obtain  less  profit.  From  sources  of  sub- 
stance of  advantageous  situation,  or  that  could 
be  utilized  in  producing  substance  of  higher  grades 
or  in  greater  volume  in  relation  to  the  effort  ap- 
plied, profit  would  continue  to  be  secured  at  lower 
prices  for  substance,  although  the  total  of  that 
profit  and  the  ratio  of  profit  to  debits  incurred 
might  diminish. 

Under  our  supposition  that  which  could  be  ob- 
tained from  the  utilization  of  the  source  of  sub- 
stance of  our  example  was  profit  of  $3000.  If  a 
person  with  accumulated  credits  desired  to  buy 
it,  and  would  be  content  with  a  return  of  10  per 
cent,  upon  his  investment,  he  would  be  willing  to 
pay  $30,000  for  that  source  of  substance,  includ- 


SUMMARY,  RESTATEMENT  333 

iiig,  of  course,  its  equipment.  If  the  owner  could 
not  obtain  more  and  sold  it  for  $30,000,  that  would 
be  its  price.  That  would  be  its  value,  even  if  he 
did  not  sell  it.  The  case  is  not  quite  so  simple 
as  this,  because  the  profit  of  $3000  was  obtained 
not  only  upon  the  source  of  substance  but  also 
upon  the  investment  in  wages  and  other  expenses 
incurred  in  its  utilization.  For  convenience  and 
simplification,  the  effect  of  this  element  upon  the 
value  is  here  disregarded. 

If  one  who  wanted  to  utilize  that  source  of  sub- 
stance was  content  with  a  net  profit  of  $1500,  he 
might  be  willing  to  pay  rental  in  the  amount  of 
$1500,  which  would  be  one-half  of  the  gross  profit. 
If  the  owner  was  content  with  a  net  return  of 
$1500  upon  his  investment,  he  might  lease  the 
source  of  substance  for  that  rental,  which  would 
be  return  of  5  per  cent,  upon  its  value.  If  he 
paid  for  it  $20,000  he  would  be  receiving  a  return 
of  71/2  per  cent,  upon  his  investment;  if  he  had 
paid  for  it  $40,000  he  would  be  receiving  a  return 
of  3%  per  cent,  upon  his  investment.  This  would 
be  return  upon  his  investment  but  not  upon  the 
value.  The  value  of  the  source  of  substance  would 
not  depend  upon  what  he  had  paid  for  it,  but 
upon  what  he  could  obtain  for  it,  and  this  would 
be  $30,000.  That  which  he  received  for  the  right 
to  its  utilization  would  depend  not  upon  what  he 
had  paid  for  it  but  upon  what  could  be  obtained 
by  means  of  its  utilization.    And  upon  what  could 


834.  THE  FLOW  OF  VALUE 

be  obtained  by  means  of  its  utilization  would  de- 
pend what  could  be  obtained  for  it  if  it  were  sold. 
Therefore  its  value  would  depend  upon  what  could 
be  obtained  by  means  of  its  utilization.  If  the 
price  of  substance  fell,  profit  from  the  utilization 
might  so  diminish  that  $1500  could  not  be  paid  as 
rent;  it  might  diminish  so  that  rent  could  not  be 
paid.  If  so,  the  value  of  the  source  of  substance 
would  fall. 

This  makes  clear  the  all-important  fact  that 
when  it  is  said  the  source  of  substance  yielded 
profit  of  $3000,  it  is  meant  that  from  its  utiliza- 
tion profit  was  obtained  in  that  amount.  That 
utilization  was  by  human  effort.  Without  the  ap- 
plication of  human  effort  there  would  have  been 
no  yield  of  substance,  no  sale  of  substance,  and  no 
profit.  The  source  of  substance  itself  did  not 
yield  profit;  it  was  its  utilization  that  yielded 
profit.  A  factor  in  giving  value  to  the  source  of 
substance  was  the  essential  characteristics  that 
adapted  it  for  utilization  toward  meeting  human 
wants,  but  value  could  not  be  realized  unless  it 
was  sold,  or  unless  it  was  utilized  toward  meeting 
wants.  Its  essential  characteristics  would  not 
give  it  value  unless  it  were  utilized  or  of  potential 
utilization. 

Living  Upon  Rent,  Interest,  or  Profit 

If  the  source  of  substance  were  rented  for 
$1500,  the  owner  might,  if  he  so  elected,  maintain 


SUMMARY,  RESTATEMENT  336 

himself  and  his  family  upon  this  income  without 
applying  his  own  effort  in  production.  This 
would  mean  that  the  owner,  without  applying  his 
effort  in  production,  would  have  command  over 
man-hours  sufficient  to  provide  final  utilities  for 
the  man-days  of  himself  and  family. 

The  profit  of  $3000  secured  by  means  of  the 
utilization  of  the  source  of  substance  was  ob- 
tained by  the  application  of  man-hours.  That 
profit  gave  command  over  man-hours.  Whether 
of  that  profit  $1500  were  paid  to  the  owner  as 
rent  it  still  would  be  that  that  rental  was  derived 
from  the  application  of  man-hours  and  that  it  gave 
command  over  man-hours.  It  is  so  also  with  rent 
derived  from  according  the  right  to  utilize  an  in- 
strument of  production.  It  is  so  also  with  inter- 
est derived  from  according  the  right  to  utilize 
accumulated  credits.  It  is  so  also  with  profit  of 
every  kind  obtained  in  that  production,  buying, 
and  selling  upon  which  the  continuity  of  produc- 
tion depends,  even  though  a  portion  of  that  profit 
accrue  to  one  who  does  not  apply  his  effort  in 
production. 

Source  of  substance  or  instrument  of  produc- 
tion would  not  return  profit  nor  rent  nor  inter- 
est to  him  who  receives  them  unless  utilized  to- 
ward the  production  of  utilities  which  meet  hu- 
man wants,  and  for  which  buyers  pay  the  prices 
that  enable  the  attainment  of  profit,  rent,  or  in- 
terest.   Those  whose  purchases  of  utilities  have 


336  THE  FLOW  OF  VALUE 

enabled  such  attainment  have  obtained  that  for 
which  they  have  paid.  In  the  absence  of  hamper- 
ing restrictions  upon  production,  buying,  and  sell- 
ing, they  have  the  opportunity  to  buy  the  utilities 
they  want  at  the  lowest  prices  at  which  they  can 
be  bought,  and  therefore  the  attainment  of  rent, 
interest,  or  profit  under  such  conditions  does  not 
deprive  them. 

It  is  quite  true,  however,  that  any  person  ca- 
pable of  applying  effort  toward  the  benefit  of 
others,  who  lives  upon  profit,  rent,  or  interest 
without  so  applying  his  effort,  is  depriving  his 
fellow  men  of  the  results  of  available  effort.  He 
is  also  depriving  himself  of  that  exercise  of  his 
faculties  which  conduces  to  the  fullness  of  his  own 
life.  The  human  body  and  brain  are  what  they 
are  because  of  the  activity  compelled  by  the  strug- 
gle for  existence  throughout  the  untold  ages  dur- 
ing which  the  interaction  between  man  and  his 
environment  developed  the  body  and  brain  into 
what  they  are.  The  dictum  of  certain  economists 
that  man  obtains  that  which  he  wants  by  sacrifice, 
that  work  is  pain  to  be  endured  for  the  sake  of 
the  resulting  pleasure,  that  effort  applied  is  a  dis- 
utility to  be  offset  by  the  utilities  gained,  is  due 
to  a  misconception  of  man's  place  in  nature  which 
has  permeated  the  thought  of  the  nations  to  the 
injury  of  mankind.  If  a  man  does  not  use  his 
bodily  organs  in  overcoming  that  which  offers 
resistance,  they  deteriorate;  and  if  he  does  not 


SUMMARY,  RESTATEMENT  337 

use  his  brain  in  arriving  at  decisions  continually 
compelled  by  his  relations  with  his  environment, 
it  degenerates. 

But  those  who,  with  credits  obtained  as  profit, 
rent,  or  interest  that  afford  a  surplus  over  their 
expenditures  for  final  utilities,  invest  that  surplus 
in  channels  of  production,  buying,  and  selling,  may 
by  discriminating  investment  render  service  to 
their  fellow  men  not  less  important  than  those  who 
immediately  apply  their  effort  in  these  channels. 
By  placing  credits  in  the  way  of  that  utilization 
from  which  the  greatest  profit  may  be  derived 
they  contribute  to  the  production  of  utilities  for 
which  there  is  the  greatest  demand  in  relation  to 
supply.  By  transferring  credits  over  which  they 
have  command  from  one  line  of  production  to 
another,  as  there  are  changes  in  the  interrelations 
between  supply  and  demand,  they  tend  toward  the 
adjustment  of  production  in  that  relativity  which 
serves  in  the  utmost  degree  toward  meeting  the 
varied  wants  of  all  persons.  To  such  discrimi- 
nating investment  is  requisite  wide  information 
and  sound  judgment,  the  application  of  man-hours 
of  a  high,  if  not  of  the  highest,  order. 

It  remains  the  fact,  however,  that  those  who 
expend  credits  derived  as  profit,  interest  or  rent 
from  production,  buying  and  selling  in  which  their 
effort  has  absolutely  had  no  part,  do  not  expend 
of  their  man-hours  in  return  for  command  over  the 
man-hours  of  others.    Their  expenditure  is  of  the 


338  THE  FLOW  OF  VALUE 

command  over  the  man-hours  of  others  which  they 
have  received  without  the  application  of  effort. 
As  all  production  is  through  the  application  of 
available  man-hours,  their  expenditure  is  not  with- 
out effect  in  determining  the  proportions  in  which 
these  man-hours  are  applied  in  the  respective 
kinds  of  production.  Therefore  it  is  necessary 
that  there  be  further  analysis  of  the  effect  of  the 
expenditures  of  all  persons  upon  production. 

Man-hours  for  Man-hours 

To  the  final  sellers  of  final  utilities — those  who, 
as  a  rule,  are  retail  dealers — are  paid  credits  ex- 
pressed in  terms  of  dollars  and  certified  by  coins, 
bank  notes,  government  notes,  or  checks  on  banks. 
These  dollars  may  have  been  received  as  wages 
for  effort  applied  under  the  direction  of  an  em- 
ployer; or  by  an  employer  from  the  sale  of  utili- 
ties for  the  production  of  which  he  has  been  re- 
sponsible; or  as  fees  for  professional  effort  ap- 
plied in  rendering  services  to  each  of  a  number 
of  clients ;  or  they  may  have  been  received  as  rent, 
as  interest,  as  profit;  or  from  the  sale  of  source 
of  substance. 

Credits  received  by  wage-workers  in  the  pro- 
duction of  utilities,  for  the  sale  of  which  their 
employers  are  responsible,  are  in  return  for  man- 
hours  applied  by  the  recipients  of  such  credits. 

Credits  received  by  domestic  and  personal  serv- 


SUMMARY,  RESTATEMENT  339 

ants  are  in  return  for  man-hours  applied  by  the 
recipients  of  such  credits. 

Credits  received  as  fees  by  those  who  practise 
the  professions — which  merge  into  salary  when 
such  effort  is  applied  continuously  in  the  service 
of  the  same  client,  as  that  of  a  teacher,  or  of  a 
doctor,  or  of  a  lawyer  under  salary — are  in  re- 
turn for  man-hours  applied  by  the  recipients  of 
such  credits. 

Credits  received  by  those  who  practise  the  arts, 
such  as  accrue  to  artist,  sculptor,  composer,  or 
author,  are  in  return  for  the  man-hours  applied 
by  them  in  the  production  of  paintings,  statues, 
musical  compositions,  or  books. 

Credits  received  by  employers  from  the  sale  of 
utilities  are  in  return  for  the  results  of  man-hours 
applied  by  themselves  and  by  their  employees,  and 
for  the  results  of  man-hours  applied  in  the  past 
utilized  by  them  in  production.  These  credits  are 
due  in  part  to  the  man-hours  of  employees  applied 
in  the  present,  in  part  to  the  results  of  man-hours 
applied  in  the  past  that  are  utilized,  and  in  part 
to  the  man-hours  of  the  employer. 

Credits  received  as  profit — or  as  rent,  or  inter- 
est, which  intrinsically  are  profit  to  the  recipient 
— are  from  the  sale  of  the  results  of  man-hours 
applied  in  the  past.  Profit  is  the  surplus  of  the 
return  received  by  the  employer  over  what  he  pays 
for  the  man-hours  of  others  applied  in  the  present, 


340  THE  FLOW  OF  VALUE 

and  for  the  results  of  the  man-hours  of  others  ap- 
plied in  the  past,  and  therefore  is  return  for  the 
application  of  the  man-hours  of  the  employer. 

The  employer  who  sells  utilities  of  any  kind, 
for  the  production  of  which  he  has  been  respon- 
sible, must  from  the  credits  received  pay  wages 
to  immediate  employees,  which  are  expended  by 
them  in  greater  or  less  proportions  for  final  util- 
ities. He  must  make  payments  to  the  employers 
responsible  for  their  production  for  the  results 
of  man-hours  applied  in  the  past  which  he  has 
utilized.  These  in  turn  must  pay  wages  to  their 
employees,  and  make  payment  to  employers  re- 
sponsible for  its  production  for  that  which  they 
have  utilized.  This  course  continues  throughout 
all  production.  While  the  employer  is  responsi- 
ble for  the  return  accruing  to  many,  perhaps  a 
multitude  of  persons,  for  the  man-hours  applied 
by  them,  and  perhaps  to  many  others  for  the 
return  upon  that  in  which  they  have  property,  the 
return  accruing  to  him  in  which  he  has  property  is 
in  the  form  of  net  profit.  If  he  is  to  increase  the 
productivity  of  his  business,  part  of  this  profit 
must  be  expended  for  the  utilities  which  enable 
that  increase,  and  thus  be  paid  to  those  whose 
man-hours  produce  those  utilities.  If  he  enlists 
more  employees,  portions  of  the  profit  must  be 
paid  as  wages.  If  he  increase  his  purchases  of 
the  results  of  past  effort,  increased  portions  of 
the  profit  must  be  paid  to  the  employers  producing 


SUMMARY,  RESTATEMENT  341 

them.  If  any  portion  of  the  profit  be  invested  in 
other  production,  it  will  be  likewise  expended  by 
those  responsible  for  that  production.  Thus  the 
individual  return  for  his  individual  use  received 
by  the  employer  is  no  more  than  that  portion  of 
his  credits  which  he  expends  for  final  utilities  for 
the  use  of  himself  and  those  dependent  upon  him. 

If  investment  in  production  involve  purchase 
of  instrument  of  production  or  source  of  sub- 
stance, the  buyer  pays  immediately  utilizable  com- 
mand over  man-hours  in  the  expectation  of  obtain- 
ing greater  command  over  man-hours  by  means  of 
its  utilization.  There  must  be  paid  wages  that 
give  command  over  man-hours  applied  in  that  util- 
ization, and  there  must  be  paid  credits  for  the 
results  of  man-hours  applied  in  the  past  required 
in  that  utilization.  The  seller  obtains  credits  with 
which  he  may  buy  final  utilities  and  thus  exert 
command  over  man-hours,  or  he  may  invest  a  por- 
tion of  the  credits  in  further  production,  in  which 
case  they  will  pass  to  those  who  apply  their  man- 
hours. 

Rent,  interest,  or  profit  may  accrue  in  various 
proportions  to  those  who  at  the  same  time  receive 
credits  in  return  for  the  direct  application  of 
their  man-hours,  if  they  have  made  investment 
of  accumulated  credits ;  and  to  employers,  in  addi- 
tion to  the  profit  received  by  them  in  the  produc- 
tion for  which  they  have  been  responsible,  if  they 
have  made  other  investment.     To  the  extent  that 


342  THE  FLOW  OF  VALUE 

credits  so  derived  are  expended  by  the  recipient 
for  final  utilities  they  enhance  his  command  over 
man-hours  which  minister  to  his  individual  wants. 
To  the  extent  that  they  are  reinvested  they  must 
pass  to  those  who  buy  final  utilities.  Those  who 
further  production  by  investing  in  means  of  pro- 
duction provide  the  credits  which  in  greater  pro- 
portion pass  as  wages  to  those  who  apply  their 
efforts  in  production. 

Thus  we  perceive  that  in  overwhelmingly  greater 
proportion  the  final  purchases  of  final  utilities  are 
effected  by  credits  received  in  return  for  the  man- 
hours  applied  by  those  who  so  expend  them.  The 
only  credits  expended  for  final  utilities  that  are 
otherwise  derived  are  of  those  obtained  as  rent, 
interest,  or  profit  which  are  not  reinvested  in  pro- 
duction, and  they  have  been  received  for  man- 
hours  applied  by  others.  Thus  it  is  that  coins, 
bank  notes,  government  notes,  and  checks  on  banks 
paid  to  retail  dealers  for  final  utilities  are  cred- 
its received  in  return  for  the  application  of  man- 
hours.  They  pay  for  utilities  in  which  man-hours 
are  embodied,  and  thus  man-hours  pay  for  man- 
hours.  If  credits  have  been  received  as  wages, 
they  are  in  return  for  man-hours  applied  by  those 
who  have  received  the  credits.  If  they  have  been 
received  as  rent,  interest,  or  profit,  they  are  com- 
mand over  man-hours  that  have  been  saved  by 
employers  in  the  sense  that  they  have  produced 
utilities  with  the  application  of  a  smaller  number 


SUMMARY,  RESTATEMENT  343 

of  man-hours  than  have  been  paid  for  them,  and 
thus  have  obtained  command  over  a  greater  num- 
ber of  man-hours  than  those  for  which  they  have 
paid  in  production. 

While  in  the  continuity  of  production,  buying, 
and  selling  final  utilities,  as  a  rule,  reach  the  final 
purchaser  through  the  retail  dealer,  utilities  of 
any  kind  of  more  than  transient  usefulness  may 
be  bought  and  sold  by  those  who  have  acquired 
property  in  them  subsequent  to  their  sale  by  reg- 
ular dealers.  There  is,  for  example,  the  buying 
and  selling  of  second-hand  clothing  to  a  degree 
not  generally  known.  There  is  the  sale  of  furni- 
ture, household  utensils,  tools,  farm  implements, 
domestic  animals,  vehicles  of  one  kind  and  an- 
other, and  machines  of  various  kinds  by  those  who 
have  used  them.  Such  a  sale  may  be  consum- 
mated by  the  transfer  of  credits  from  the  buyer 
to  the  seller,  or  there  may  be  the  ** trading"  of 
a  utility  of  one  kind  for  a  utility  of  another  kind, 
each  party  desiring  the  thing  he  obtains  more 
than  the  thing  with  which  he  parts.  There  fre- 
quently is  the  sale  of  an  instrument  of  production 
by  other  than  the  original  purchaser  to  one  who 
may  believe  that  he  can  utilize  it  toward  obtaining 
credits  in  greater  measure  than  he  who  parts  with 
it.  In  any  event  there  is  the  sale  of  the  results 
of  the  application  of  the  results  of  effort,  and  the 
buying  of  the  results  of  the  application  of  effort; 
man-hours  are  balanced  against  man-hours. 


S4>4>  THE  FLOW  OF  VALUE 

Employers  by  utilizing  credits,  and  investors 
by  placing  credits  in  the  way  of  that  utilization 
through  which  profit,  rent,  and  interest  are  ob- 
tained, contribute  to  the  production  of  final  util- 
ities which  meet  wants  to  the  extent  that  they  are 
purchased  by  final  buyers.  As  it  is  the  impulse 
given  by  final  buyers  which  determines  the  pro- 
portions in  which  final  utilities  shall  be  produced, 
this  impulse  tends  to  determine  the  proportions 
in  which  man-hours  are  applied  in  the  various 
stages  and  phases  of  the  respective  kinds  of  pro- 
duction, and  therefore  the  proportions  in  which 
credits  are  invested  in  all  that  is  requisite  at  the 
various  stages  and  phases  of  the  different  kinds 
of  production.  Thus  it  is  in  accordance  with  the 
demand  of  final  buyers  for  final  utilities  that  em- 
ployers enlist  effort  not  only  in  the  production 
of  substance,  intermediate  utilities,  and  final  utili- 
ties but  also  in  the  provision  of  instruments  of 
production,  and  in  accordance  with  which  they 
utilize  sources  of  substance. 

While  the  continuity  of  production,  buying,  and 
selling  in  the  ultimate  analysis  is  the  exchange  of 
man-hours  for  man-hours,  and,  in  the  main,  the 
exchange  of  man-hours  applied  in  the  past  for 
man-hours  applied  in  the  present,  this  exchange 
is  effected  through  intervening  phenomena.  The 
employee  sells  man-hours  to  the  employer  but 
does  not  receive  man-hours  directly  in  return. 
He  receives  wages  in  the  form  of  credits  that  give 


SUMMARY,  RESTATEMENT  345 

command  over  the  results  of  the  application  of 
man-hours,  which  in  essence  is  command  over  the 
man-hours  applied.  The  employer  buys  man- 
hours  but  in  return  he  does  not  pay  man-hours  di- 
rectly; he  pays  wages.  In  the  purchase  of  the 
utilities  which  he  utilizes,  the  employer  pays  for 
man-hours  applied  in  the  past  in  the  sense  that 
he  pays  for  the  results  of  man-hours  applied  in 
the  past.  And  so  also,  in  this  sense,  the  buyer 
of  substance  pays  for  the  man-hours  applied  in 
its  production,  the  buyer  of  intermediate  utili- 
ties pays  for  the  man-hours  applied  in  their  pro- 
duction, the  buyer  of  instruments  of  production 
pays  for  the  man-hours  applied  in  their  produc- 
tion, the  buyers  of  final  utilities  pay  for  all  of 
the  man-hours  applied  in  their  production. 

The  True  Significance  of  the  Ratio  of  Exchange 

The  continuity  of  the  application  of  man-hours 
and  of  the  exchange  of  the  results  of  their  appli- 
cation for  the  man-hours  that  are  further  applied, 
means  that  there  must  be  the  continuity  of  debits 
and  credits. 

Credits  received  by  an  employer  indicate  that 
utilities,  for  the  production  of  which  he  has  been 
responsible,  have  been  sold. 

Credits  received  by  an  employee  indicate  that 
his  man-hours  have  been  sold;  that  is,  that  they 
have  been  applied  under  the  direction  of  the  em- 
ployer. 


346  THE  FLOW  OF  VALUE 

Debits  incurred  by  an  employer  indicate  that 
he  has  paid  for  man-hours  applied.  This  state- 
ment summarizes  the  incurring  of  all  debits  by 
all  employers  in  the  various  stages  and  phases 
that  lead  to  the  production  of  final  utilities,  be- 
cause as  in  the  receding  stages  of  production  cred- 
its pass  from  one  employer  to  another,  each  em- 
ployer incurs  debits  for  the  man-hours  he  has 
enlisted,  and  for  the  results  of  the  man-hours  he 
has  utilized. 

Debits  incurred  by  an  employee  indicate  that 
his  credits  have  been  expended  for  final  utilities, 
or  that  the  command  over  man-hours  accorded  by 
them  has  otherwise  been  exerted. 

The  supreme  importance  of  the  fact  that  the 
employer  buys  man-hours  and  sells  final  utilities 
— or  what  in  the  course  of  production  eventuate 
in  final  utilities — and  that  the  employee  sells  man- 
hours  and  buys  final  utilities,  makes  its  emphasis 
desirable.  If  there  were  but  one  stage  in  the 
production  of  final  utilities,  and  the  processes 
were  conducted  by  one  organization  of  employer 
and  employees,  employers  would  incur  debits  for 
wages  and  employees  would  incur  debits  for  final 
utilities.  In  the  prolongation  of  production  all 
of  the  employers  in  the  several  stages  incur  debits 
for  wages,  and  the  total  of  wages  paid  by  all  em- 
ployers in  the  several  stages  to  all  of  the  em- 
ployees are  for  effort  applied  toward  the  produc- 
tion of  final  utilities.    If  the  production  were  at 


SUMMARY,  RESTATEMENT  347 

one  stage,  the  credits  of  one  employer  would  be 
resolved  into  wages  and  profit.  When  the  pro- 
duction is  through  several  stages,  the  credits  that 
pass  from  one  employer  to  another  are  resolved 
into  the  wages  paid  by  and  the  profit  received  by 
the  several  employers.  In  essence  the  effect  is 
the  same  as  though  the  production  were  by  one 
employer  and  his  employees,  in  the  sense  that  an 
employer  receives  credits  for  utilities  sold  and 
buys  man-hours,  while  the  employee  receives 
credits  for  man-hours  applied  and  buys  final  utili- 
ties. Thus  the  exchange  of  man-hours  for  man- 
hours  is  effected,  in  essence,  through  the  exchange 
by  the  employer  of  final  utilities  for  man-hours, 
and  the  exchange  by  the  employee  of  man-hours 
for  final  utilities. 

Therefore  the  price  of  final  utilities  as  expressed 
in  dollars — that  is,  the  ratio  of  final  utilities  to  the 
dollar — is  not  the  ratio  at  which  final  utilities  ex- 
change for  other  final  utilities.  It  is  the  ratio  at 
which  final  utilities  exchange  for  man-hours ;  that 
is,  the  ratio  at  which  want-units  exchange  for 
man-hours,  and  man-hours  for  want-units.  Re- 
tail dealers  do  not — save  in  exceptional  cases 
which  may  be  shown  in  essence  not  to  be  exceptions 
— exchange  flour,  mutton,  potatoes,  butter,  eggs, 
collars,  stockings,  shoes,  hats,  nails,  knives,  forks, 
calico,  watches,  finger-rings,  washtubs,  dishpans, 
newspapers,  books,  and  so  forth  and  so  on,  utili- 
ties of  one  kind  for  utilities  of  another  kind.    They 


348  THE  FLOW  OF  VALUE 

buy  final  utilities  from  the  final  producer,  and 
sell  them  to  the  final  purchaser.  Final  utilities 
are  sold  at  prices  expressed  in  dollars.  They 
have  a  ratio  to  the  dollar,  but  that  is  not  their 
exchange  ratio  in  the  sense  that  utilities  of  one 
kind  exchange  for  utilities  of  another  kind.  It 
has  been,  however,  through  a  long  evolution  that 
the  ratio  to  the  dollar  of  utilities  produced,  and 
the  ratio  to  the  dollar  of  man-hours  applied,  have 
come  to  be  determined  by  the  interrelations  be- 
tween the  proportions  in  which  man-hours  are 
applied  in  the  production  of  utilities,  and  the  pro- 
portions in  which  man-hours  buy  utilities  pro- 
duced. 

The  first  exchanges,  when  a  community  emerges 
from  self-sufficiency,  are  of  things  of  one  kind  for 
things  of  another  kind.  But  even  then,  although 
the  exchange  ratios  indicate  the  measure  of  things 
of  one  kind  that  exchanges  for  a  measure  of  things 
of  another  kind,  it  is  really  the  effort  applied  in 
producing  things  of  one  kind  that  is  paid  for  when 
things  of  another  kind  are  obtained  in  exchange 
for  them.  When  the  medieval  artisan  took  wares 
of  the  kinds  he  produced  to  a  fair  and  exchanged 
them  for  things  of  the  different  kinds  he  wanted, 
the  exchange  ratios  indicated  the  measure  of 
things  of  one  kind  that  were  exchanged  for  a  meas- 
ure of  things  of  another  kind,  but  it  was  also  the 
effort  applied  in  producing  things  of  one  kind  that 
was  paid  for  when  things  of  another  kind  were  ob- 


SUMMARY,  RESTATEMENT  349 

tained  in  exchange  for  them.  When  there  was 
first  an  organization  of  employer  and  employee, 
the  employer  received  credits  for  the  utilities  sold 
and  paid  wages  to  his  employee.  The  credits  paid 
the  employee  as  wages  enabled  him  to  buy  things 
of  various  kinds,  but  it  was  his  man-hours  applied 
in  production  that  paid  for  these  various  things. 
His  man-hours  gave  command  over  the  results 
of  the  man-hours  of  others,  and  therefore  over  the 
man-hours  of  others.  With  the  evolution  of  the 
merchant,  who  bought  a  variety  of  final  utilities 
from  their  final  producers  and  sold  them  to  a  num- 
ber of  final  purchasers,  from  whom  he  did  not 
obtain  other  final  utilities  in  exchange  for  them, 
it  becomes  more  evident  that  the  ratio  of  final 
utilities  to  the  dollar  was  not  really  determined 
by  the  exchange  of  final  utilities  for  final  utilities. 
In  the  present  stage  of  commercial  and  industrial 
evolution,  in  which  all  final  utilities  are  produced 
by  man-hours  applied  in  successive  series  to  sub- 
stance, intermediate  utilities,  and  through  instru- 
ments of  production  in  the  production  of  final 
utilities,  it  becomes  all  the  more  clear  that  the 
ratio  of  exchange  is  the  ratio  at  which  man-hours 
exchange  for  want-units  and  want-units  for  man- 
hours. 

If  in  the  production  of  all  final  utilities  there 
were  but  one  organization  of  employer  and  em- 
ployee, final  utilities  as  they  were  produced  would 
be  the  property  of  the  employer  until  they  had 


350  THE  FLOW  OF  VALUE 

passed  to  the  employee.  When  they  had  so 
passed,  the  man-hours  for  which  they  had  paid 
would  have  produced  other  utilities,  which  would 
be  the  property  of  the  employer  until  they  passed 
as  wages  to  the  employee,  and  so  on  in  the  con- 
tinuity of  production. 

It  is  likewise  when  the  production  of  final  utili- 
ties of  all  kinds  is  by  various  organizations  of 
employer  and  employees  engaged  in  the  various 
stages  and  phases  of  the  production.  Credits  re- 
ceived by  employees  as  wages  are  in  return  for 
man-hours  applied  in  the  present  which  will 
eventuate  in  final  utilities  in  the  future.  With 
these  credits  they  buy  final  utilities  that  have  been 
produced  prior  to  the  application  of  the ,  man- 
hours  for  which  the  wages  were  received.  The 
man-hours  for  which  these  credits  have  been  re- 
ceived eventuate  in  the  production  of  final  utili-^ 
ties  in  the  future,  which  the  employees  may  buy 
when  they  have  received  wages  for  the  applica- 
tion of  man-hours  that  will  eventuate  in  the  pro- 
duction of  final  utilities  in  the  further  future. 
Man-hours  are  ever  being  paid  for  final  utilities 
that  have  been  produced;  final  utilities  that  have 
been  produced  are  ever  being  paid  for  man-hours 
that  will  result  in  the  production  of  final  utilities 
in  the  future.  As  it  is  in  terms  of  the  dollar  that 
man-hours  are  bought,  and  it  is  want-units  that 
pay  for  man-hours;  and  as  it  is  in  terms  of  the 
dollar  that  want-units  are  bought,  and  man-hours 


SUMMARY,  RESTATEMENT  351 

pay  for  want-units,  it  follows  that  the  true  signifi- 
cance of  the  dollar  is  the  relation  of  man-hours 
to  want-units,  of  want-units  to  man-hours. 

The  ratio  to  the  dollar  of  man-hours — that  is, 
the  wage  of  the  employee — is  determined  by  inter- 
relations between  the  supply  of  and  the  demand 
for  effort  of  the  quality  he  is  capable  of  applying 
toward  the  production  of  final  utilities;  and  the 
ratio  to  the  dollar  of  final  utilities  is  determined 
by  the  interrelations  between  the  supply  of  and 
the  demand  for  final  utilities  of  the  respective 
kinds  which  find  expression  in  the  proportions  of 
man-hours  applied  that  final  purchasers  pay  for 
final  utilities  of  the  respective  kinds.  Therefore, 
the  ratio  to  the  dollar  of  substance,  intermediate 
utilities,  and  instruments  of  production  is  deter- 
mined by  interrelations  between  the  supply  of  and 
the  demand  for  such  utilities  in  the  processes  that 
lead  to  the  production  of  final  utilities.  The  ratio 
to  the  dollar  of  sources  of  substance  is  determined 
by  interrelations  between  the  supply  of  and  the 
demand  for  the  substance  yielded,  and  thus  de- 
pends upon  the  interrelations  between  the  supply 
of  and  the  demand  for  the  final  utilities  into  which 
that  substance  is  ultimately  transformed. 

The  ratio  to  the  dollar  of  man-hours  is  deter- 
mined at  the  time  the  man-hours  are  applied;  the 
ratio  to  the  dollar  of  final  utilities  is  determined, 
as  a  rule,  after  they  have  been  produced  and 
wages  have  been  paid  for  man-hours  applied  in 


353  THE  FLOW  OF  VALUE 

their  production.  It  is  the  employers  who  are 
responsible  for  the  payment  of  wages  at  the  time 
man-hours  are  applied,  and  for  the  sale  of  the 
utilities  after  they  have  been  produced.  They  are 
responsible  for  the  adjustment  between  man- 
hours  applied  in  the  past,  in  the  present,  and  in 
the  future. 

The  Synthesis  of  Production 

Every  person  must  have  final  utilities  in  a 
certain  variety  and  in  certain  proportions.  The 
total  of  credits  received  from  the  sale  of  final 
utilities  of  any  kind  must  enable  all  of  the  em- 
ployers and  employees  engaged  in  their  produc- 
tion to  buy  final  utilities  of  other  kinds  in  various 
proportions.  The  total  of  credits  received  by  all 
final  sellers  from  the  sale  of  all  final  utilities  must 
enable  each  employer  and  each  employee  engaged 
in  their  production  to  buy  final  utilities  of  various 
kinds  and  in  various  proportions. 

If,  for  example,  141  want-units  of  utilities  Nos. 
1,  2,  3,  4,  and  5  are  required  for  the  man-day  of 
one  person,  the  employers  responsible  for  the  pro- 
duction of  all  of  these  utilities  must  produce  them 
in  volumes  that  will  enable  each  person  applying 
his  efforts  to  obtain  at  least  141  units  of  the  differ- 
ent utilities  in  the  requisite  proportions.  That  is, 
the  number  of  want-units  of  all  kinds  in  the  requi- 
site proportions  must  be  at  least  141  times  the 
number  of  persons  engaged  in  the  production. 


SUMMARY,  RESTATEMENT  353 

If  at  a  given  time  there  is  a  smaller  than  the 
requisite  relative  production  of  a  utility  of  any 
kind,  and  each  person  expends  the  same  proportion 
of  his  man-hours  for  want-units  of  that  kind,  he 
will  obtain  a  smaller  measure  of  them  in  return. 
If,  in  order  to  obtain  the  same  measure  of  that 
utility  as  before,  a  number  of  persons  respectively 
expend  the  increased  proportions  of  their  respec- 
tive man-hours  necessary  to  its  attainment  they 
will  not,  other  things  equal,  be  able  to  buy  the 
same  measures  of  other  utilities,  and  the  remain- 
ing number  of  persons  will  be  unable  to  buy  that 
utility.  There  would  be  a  diminution  in  the  total 
number  of  want-units  received  by  all  persons  in 
return  for  their  man-hours.  If  there  be  a  dimin- 
ished production  of  two  or  more  of  the  utilities, 
there  will  be  a  further  reduction  in  the  number  of 
want-units  received  in  return  for  the  man-hours 
applied  in  production. 

If,  on  the  other  hand,  a  larger  than  the  relative 
volume  be  produced  of  a  utility  of  any  of  these 
kinds,  the  employer  will  have  a  surplus  of  utilities 
of  that  kind.  But  he  will  have  no  advantage  in 
producing  a  larger  volume  if  he  is  obliged  to  sell 
it  for  the  same  total  of  credits  as  the  smaller  vol- 
ume previously  produced.  If  he  can  obtain  from 
the  sale  of  a  larger  volume  command  over  a 
greater  number  of  man-hours,  he  may  be  encour- 
aged to  increase  his  production.  He  can  not,  how- 
ever, obtain  this  greater  command  unless  the  rela- 


354  THE  FLOW  OF  VALUE 

tive  volume  of  the  other  utilities  has  so  increased 
that  an  additional  supply  of  each  will  contribute 
to  command  over  an  additional  number  of  man- 
hours.  That  is,  if  no  more  of  the  four  other  util- 
ities are  produced  than  sufficient  to  supply  the 
same  proportions  as  before  of  the  wants  of  each 
person  then  engaged  in  production,  the  efforts  of 
additional  persons  can  not  be  enlisted  because  of 
the  larger  production  of  one  utility  alone.  If  the 
production  of  all  five  of  the  utilities  has  increased 
in  relation  to  the  effort  applied,  the  efforts  of  addi- 
tional persons  can  be  enlisted  in  production.  As 
many  additipnal  persons  can  be  employed  as  can 
be  supplied  with  141  units  of  the  five  utilities, 
and  as  will  apply  their  man-hours  in  return  for 
that  wage. 

So  long  as  employees  could  be  obtained  by  the 
payment  to  each  of  141  units  of  the  five  utilities, 
and  the  production  of  each  utility  were  at  the  same 
increased  ratio  in  relation  to  the  effort  applied, 
profit  from  the  production  of  these  utilities  would 
increase  in  the  ratio  that  the  volume  of  those  pro- 
duced exceeded  141  units  for  each  employee,  pro- 
vided there  were  additional  persons  over  whose 
man-hours  the  surplus  would  give  command.  If, 
however,  production  increased  in  greater  ratio 
than  the  number  of  employees  available,  there 
would  be  competition  between  employers  for  em- 
ployees.   To  the  extent  that  he  could  obtain  profit 


SUMMARY,  RESTATEMENT  355 

by  paying  increased  wages,  profit  which  could  not 
be  obtained  unless  he  paid  increased  wages,  an 
employer  engaged  in  the  production  of  a  utility 
of  one  kind  might  endeavor  to  secure  employees 
by  paying  higher  wages.  Employers  engaged  in 
the  production  of  the  other  utilities  would  be 
obliged  to  increase  the  wages  of  their  employees, 
and  thus  it  would  come  about  that  each  employee 
would  receive  more  than  141  want-units  as  his 
wage.  But  no  one  of  the  employers  responsible 
for  the  production  of  any  one  of  the  five  utilities 
would  be  encouraged  to  increase  its  production 
unless  from  its  sale  he  could  obtain  greater  com- 
mand over  man-hours  than  were  applied  in  the 
production.  Thus  the  continuing  attainment  of 
profit  by  employers  responsible  for  the  production 
of  any  one  of  these  utilities  would  be  dependent 
upon  the  continuing  attainment  of  profit  by  em- 
ployers responsible  for  the  production  of  all  of 
these  utilities. 

This  example  leads  to  the  deduction  that 
throughout  industry  and  commerce  wages  are  de- 
termined not  alone  by  the  number  of  employees 
seeking  employment  and  the  demand  of  employ- 
ers for  employees,  but  also  upon  the  relativity  of 
the  production  of  the  want-units  which  the  em- 
ployee must  buy  with  his  wages;  and  that  profit 
is  determined  not  alone  by  the  volume  in  which 
a  utility  is  produced  in  relation  to  the  effort  ap- 


356  THE  FLOW  OF  VALUE 

plied,  but  also  by  the  relativity  of  the  production 
of  the  want-units  that  are  requisite  to  enlist  man- 
hours  in  production. 

If  a  final  buyer  have  the  choice  of  expending  a 
proportion  of  his  credits  for  a  utility  of  one  kind 
or  a  utility  of  another  kind,  he  would  contribute  a 
portion  of  the  man-hours  over  which  he  has  com- 
mand towards  the  production  of  the  utility  which 
he  buys.  If,  however,  the  utility  be  of  a  kind  that 
is  essential  to  the  maintenance  of  his  man-days 
he  must  have  that  utility,  no  matter  what  pro- 
portion of  his  man-hours  he  pays  for  it.  The 
substances  of  which  final  utilities  are  constituted 
are  not  of  such  great  variety  that  there  is  not  a 
continuous  demand  for  substances  of  each  kind, 
especially  of  the  staple  substances  that  most  ef- 
ficiently serve  the  purpose  when  they  are  trans- 
formed into  the  final  utilities  for  which  there  is 
continuing  demand.  Organizations  of  employer 
and  employee  are  continually  engaged  in  the  va- 
rious stages  and  phases  of  the  transformation  of 
such  substances  into  final  utilities.  They  have 
acquired  property  in,  or  the  right  to  the  utiliza- 
tion of,  that  which  is  necessary  to  the  production, 
and  endeavor  to  continue  in  such  production. 
There  are  organizations,  new  and  old,  and  of  vari- 
ous degrees  of  prosperity,  from  those  on  the  mar- 
gin of  existence  to  those  with  large  accumulations 
of  assets  and  property.  As  a  rule,  therefore,  the 
final  buyers  buy  final  utilities  of  all  kinds  that 


SUMMARY,  RESTATEMENT  357 

have  been  produced  and  are  available  in  the 
market.  This  statement  needs  little  qualification 
because  of  the  final  utilities  that  are  made  to  or- 
der, because,  as  a  rule,  staple  substances  are 
transformed  into  them,  and  they  are  not  widely 
dissimilar  from  other  utilities  of  the  same  kinds. 
Final  buyers  endeavor  to  increase  their  command 
over  final  utilities,  and  the  producers  of  final  utili- 
ties endeavor  to  increase  their  sales.  To  this  end 
they  transform  substances  into  final  utilities  of 
the  grades  and  designs  that  they  believe  will  at- 
tract purchasers,  and  resort  to  alluring  devices  in 
presenting  these  utilities  for  sale.  The  final  pur- 
chaser buys  utilities  of  the  kinds  that  meet  his 
wants,  and  the  final  producer  endeavors  to  pro- 
duce utilities  of  the  kinds  that  will  tempt  the 
expression  of  his  wants  into  their  purchase;  that 
is,  into  the  payment  of  the  man-hours  over  which 
,he  has  command  in  return  for  the  man-hours  ap- 
plied in  their  production. 

The  continuing  production  of  any  final  utility  is 
in  a  continuing  circuit,  which  begins  with  the 
application  of  man-hours  to  a  source  of  substance 
and  ends  when  the  utility  passes  to  the  final  buyer ; 
this  circuit  is  through  a  period  of  time.  It,  there- 
fore, is  not  without  analogy — that,  imperfect  as  it 
is,  will  serve  as  illustration — to  the  circuit  of  a 
wheel  that  moves  forward  as  it  revolves.  In  this 
circuit  one  point  of  the  circumference  is  ever  suc- 
ceeded by  another  point.     So  also  in  a  circuit  of 


858  THE  FLOW  OF  VALUE 

production,  substance  succeeds  substance,  inter- 
mediate utilities  succeed  intermediate  utilities, 
final  utilities  succeed  final  utilities,  and  man-hours 
succeed  man-hours  in  their  application.  The  cir- 
cuit of  production  of  one  final  utility  is  concurrent 
with  the  circuits  of  production  of  all  other  final 
utilities.  As  man-hours  are  applied  in  different 
proportions  in  the  production  of  final  utilities  of 
different  kinds,  and  as  different  periods  of  time 
are  required  in  the  production  of  final  utilities  of 
different  kinds,  the  circuits  of  production  of  final 
utilities  are  of  different  circumferences  and  their 
respective  revolutions  are  through  different  pe- 
riods. 

Within  a  circuit  of  production  the  utilities  that 
emerge  as  credits  from  one  stage  pass  as  debits 
to  the  succeeding  stage.  When  they  have  finally 
emerged  as  credits  in  the  form  of  want-units,  they 
pass  as  debits  into  a  circuit  of  production,  minis- 
tering to  the  man-days  from  which  emanate  man- 
hours  applied  in  further  production  that  gives  rise 
to  further  credits.  Credits  from  one  circuit  of 
production  are  ever  being  absorbed  as  debits  by 
another,  wherein  they  are  transmuted  into  credits 
which  in  turn  are  absorbed  by  another  circuit  as 
debits.  Any  one  circuit  of  production  becomes 
weaker  if  the  ratio  of  debits  to  credits  increases,  or 
becomes  stronger  if  the  ratio  of  credits  to  debits 
increases ;  but  in  the  aggregate  the  strength  of  all 
the  circuits  must  increase,  and  there  must  be  a 


SUMMARY,  RESTATE^IENT  359 

relativity  in  the  increasing  strength  of  the  differ- 
ent circuits  of  continuing  production. 

Waiting  for  Payment 

Payment  in  ordinary  significance  is  made  when 
a  credit  is  received  for  a  debit;  that  is,  when  for 
utilities  sold  immediately  utilizable  command  over 
utilities  is  received.  Therefore  as  an  employee 
receives  a  credit  when  he  has  received  the  com- 
mand over  utilities  that  constitute  his  wage,  he  has 
in  this  sense  received  pay  for  the  man-hours  he 
has  applied.  In  a  further  sense  he  does  not  re- 
ceive payment  until  he  has  obtained  the  want- 
units  over  which  his  wages  give  command,  and 
thus  has  exerted  the  command  over  man-hours 
obtained  in  return  for  applying  his  man-hours. 

The  employer  does  not  receive  credits  offsetting 
the  debits  incurred  in  production  until  he  has  sold 
the  utilities  produced.  If  they  are  saleable,  the 
utilities  are  assets  even  though  they  are  not  imme- 
diately utilizable  as  conmaand  over  utilities.  If 
he  has  sufficient  accumulation  of  credits  obtained 
from  the  sale  of  utilities  in  the  past,  an  employer, 
as  a  rule,  pays  wages  in  advance  of  the  sale  of  the 
utilities  produced.  If  he  have  not  such  an  accu- 
mulation of  credits,  employees  may  have  to  await 
the  sale  of  the  utilities  before  they  receive  their 
wages,  but  this  seldom  happens ;  it  has  become  the 
almost  invariable  custom  that  wages  be  paid  when 
man-hours  have  been  applied.    It  may  be  that 


360  THE  FLOW  OF  VALUE 

when  an  employer  has  paid  wages  for  the  produc- 
tion of  a  volume  of  utilities  he  will  not  have  the 
credits  wherewith  to  pay  wages  for  the  further 
production  until  these  utilities  have  been  sold.  In 
such  a  case  he  may  borrow  credits,  the  utilities  at 
times  serving  as  security  for  the  loan  until  they 
have  been  sold  for  the  credits  with  which  it  is  paid. 
If  he  is  thus  obliged  to  borrow  credits,  they  can 
only  be  obtained  from  those  who  have  accumulated 
them.  Thus  wages  are  paid  from  accumulated 
credits,  whether  the  employer  have  property  in 
them  or  whether  he  borrow  them  from  another 
who  has  property  in  them.  When  an  employer 
has  accumulated  credits,  utilities  produced  by  him 
in  the  past  have  paid  for  the  effort  applied  in  the 
past  and  have  yielded  a  surplus  of  credit  that 
gives  him  command  over  effort  to  be  further  ap- 
plied. If  an  employer  has  to  await  the  sale  of 
utilities  produced  before  he  can  pay  for  the  effort 
applied  in  their  production,  the  credits  obtained 
when  the  utilities  are  sold  will  not  give  him  com- 
mand over  effort  to  be  applied  in  future  produc- 
tion unless  they  yield  a  surplus  as  profit.  If  he 
can  continuously  increase  his  production  in  rela- 
tion to  the  effort  applied,  he  may  obtain  profit  that 
may  so  accumulate  as  to  obviate  the  necessity  for 
borrowing. 

Before  he  obtains  the  credits  that  reimburse 
him  for  debits  expended,  he  who  makes  investment 
in  source  of  substance  must  await  the  production 


SUMMARY,  RESTATEMENT  361 

and  sale  of  substance;  he  who  makes  investment 
in  substance  for  transformation  into  intermediate 
utilities  must  await  that  transformation  and 
sale;  he  who  makes  investment  in  intermediate 
utilities  for  transformation  into  final  utilities 
must  await  that  transformation  and  sale ;  he  who 
invests  in  final  utilities  for  subsequent  sale  is 
obliged  to  await  that  sale. 

When  investment  has  been  made  in  instruments 
of  production,  the  necessity  for  awaiting  return  is 
apparent.  As  through  specialization  and  coordi- 
nation the  production  of  utilities  increases  in 
greater  ratio  than  the  number  of  those  engaged 
in  production,  it  becomes  possible  for  an  increased 
volume  of  want-units  to  buy  man-hours  not  imme- 
diately applied  toward  the  production  of  final  util- 
ities. Thus,  those  with  accumulated  credits  can 
employ  effort  in  the  production  of  instruments  of 
production. 

While  an  instrument  is  being  operated,  wages 
must  be  paid  to  those  applying  their  efforts  in 
its  operation,  and  there  must  be  want-units  for 
which  those  wages  can  be  expended.  An  instru- 
ment of  production  is  utilized  throughout  a. period 
of  time.  Day  by  day  as  it  is  operated  utilities  flow 
from  its  utilization.  The  employer  responsible 
for  their  production  does  not  receive  return  of  the 
credits  invested  in  the  instrument  until  the  credits 
obtained  from  the  sale  of  the  products  are  suffi- 
cient not  only  to  pay  the  expense  of  operation  but 


362  THE  FLOW  OF  VALUE 

to  yield  a  surplus  equivalent  to  the  investment. 
This  is  usually  not  until  it  has  been  operated 
through  a  period  of  years.  Through  the  investor 
and  by  means  of  the  employer,  man-hours  applied 
in  the  past  are  balanced  against  man-hours  ap- 
plied in  the  future.  But  if  the  investor  receives 
no  more  than  the  repayment  of  his  investment,  he 
has  not  received  return  upon  the  investment ;  that 
is,  he  has  not  received  profit  upon  the  investment. 
If  an  investor  did  not  expect  to  receive  more  than 
the  return  of  his  investment,  he  would  not  make 
the  investment. 

An  instrument  of  production  may  be  paid  for  at 
the  time  of  purchase  from  accumulated  credits  in 
which  the  buyer  has  property,  or  it  may  be  bought 
under  promise  of  payment  in  the  future,  or  paid 
for  in  part  from  accumulated  credits  and  in  part 
by  promise  of  future  payment.  If  the  buyer  of 
the  instrument  has  made  immediate  payment,  he 
will  have  property  in  the  credits  obtained  through 
its  utilization.  If  he  promise  future  payment,  he 
assumes  the  responsibility  of  obtaining  credits 
that  will  yield  a  surplus  over  the  debits  incurred 
for  wages  and  for  utilities  transformed.  It  is  so 
also  with  the  sale  and  purchase  of  sources  of  sub- 
stance— farms,  forests,  and  beds  of  minerals. 
"When  there  is  immediate  payment  for  a  source  of 
substance,  accumulated  credits  pass  from  the 
buyer  to  the  seller.  When  there  is  a  promise  of 
deferred  payment,  credits  obtained  from  the  sale 


SUMMARY,  RESTATEMENT  363 

of  utilities  produced  must  be  sufficient  to  pay  for 
the  effort  applied  in  their  production  and  to  yield 
a  surplus  wherewith  the  deferred  payment  can  be 
made.  In  case  of  immediate  payment  profit  ob- 
tained from  the  utilization  will  be  return  upon  the 
investment.  In  case  of  deferred  payment  the  in- 
vestment will  not  be  consummated  until  the  pay- 
ment is  made.  Payment  for  instrument  of  pro- 
duction or  source  of  substance  will  be  made  either 
from  profit  secured  in  the  past  or  from  profit  se- 
cured in  the  future. 

He  who  sells  utilities  for  which  immediate  pay- 
ment is  not  received  may  await  return  without 
other  certificate  of  indebtedness  than  the  open 
account  on  his  books.  Although  there  rarely  is 
investment  in  such  accounts  by  another,  it  some- 
times happens  that  open  accounts  are  sold  by  one 
who  under  stress  is  in  need  of  immediately  utiliz- 
able  credits,  and  there  are  those  who  buy  doubtful 
accounts  at  a  heavy  discount  with  the  intent  of 
exerting  pressure  for  their  payment  and  thus  ob- 
taining profit.  When  certificates  of  indebtedness 
in  the  form  of  promissory  notes  are  discounted  by 
banks  or  by  individuals,  investment  is  made  in 
them.  When  instruments  of  production  or 
sources  of  substance  are  sold  on  deferred  pay- 
ment, the  buyer,  in  addition  to  the  certificate  of 
indebtedness,  usually  gives  a  mortgage  pledging 
the  return  of  the  property  bought  in  case  payment 
is  not  made.    Such  mortgages  may  be  bought  by 


364  THE  FLOW  OF  VALUE 

investors,  who  thus  secure  the  right  to  the  de- 
ferred payment  and  to  the  interest.  Investment 
in  a  partnership  may  be  certified  by  articles  of 
agreement,  and  these  may  be  transferred  to  an 
investor  who  may  desire  to  become  either  an  active 
or  an  inactive  partner.  Investment  in  a  corpora- 
tion is  thus  certified  by  bonds  or  by  shares  of  stock. 
While  there  may  not  be  investment  in  a  partner- 
ship except  by  consent  of  the  partners,  there  may 
be  investment  in  a  corporation  by  any  one  who  can 
pay  for  its  stocks.  They  are  bought  and  sold 
in  volumes  both  small  and  large,  sometimes  in 
volumes  so  large  that  the  control  of  a  corporation 
passes  from  one  group  of  investors  to  that  of  an- 
other. In  any  event  he  who  invests  in  a  partner- 
ship or  a  corporation  is  obliged  to  await  return 
upon  his  investment  until  utilities  have  been  pro- 
duced and  sold. 

The  Retention  of  Credits 

Dollars  of  credit  mean  that  utilities  have  been 
sold  for  which  the  seller  is  entitled  to  receive  other 
utilities.  The  retention  of  credits  means  that  the 
owner  does  not  need  to  exercise,  or  does  not  desire 
to  exercise,  his  command  over  man-hours,  or  over 
the  results  of  man-hours,  during  the  period  for 
which  he  retains  them.  After  the  period  of  re- 
tention the  command  over  utilities  accorded  by 
such  credits  may  be  greater  or  less  than  it  would 
have  been  had  they  been  expended  at  the  time  of 


SUMMARY,  RESTATEMENT  365 

acquisition.  This  command  over  utilities  might 
be  greater  or  less  than  if  the  credits  had  been  util- 
ized in  production  during  the  period  throughout 
which  they  were  retained.  When  retained  cred- 
its are  in  the  form  of  bank  entries,  they  may  be 
utilized  by  the  bank  in  further  production.  In 
any  event,  after  the  period  of  retention,  the  com- 
mand over  utilities,  either  in  the  form  of  man- 
hours  or  of  want-units,  would  depend  upon  their 
ratio  to  the  dollar  at  that  time. 

Wage-earners  may  retain  portions  of  their 
credits  until  they  are  needed.  As  he  sells  his 
stock  from  time  to  time,  credits  flow  to  the  re- 
tail dealer  in  excess  of  those  he  needs  immedi- 
ately to  expend.  He  may  not  replenish  his  stock 
until  after  a  period,  especially  if  it  meet  the 
wants  of  a  particular  season.  And  so  also  with 
the  wholesale  dealer.  The  producer  of  final  utili- 
ties may  replenish  his  stock  of  intermediate  utili- 
ties, and  the  producer  of  intermediate  utilities 
may  replenish  his  stock  of  substance  only  at  cer- 
tain intervals  during  which  their  credits  accumu- 
late. Portions  of  the  credits  received  by  those 
engaged  in  seasonal  production  may  remain  in 
their  possession  until  expenditure  is  made  in 
preparation  for  the  production  of  an  ensuing  sea- 
son. Profit  of  a  partnership  or  a  corporation  is 
composed  of  credits  that  accumulate  until  they  are  . 
distributed  to  the  investors  as  dividends  or  in- 
vested as  surplus.    Thus  when  production,  buy- 


366  THE  FLOW  OF  VALUE 

iiig,  and  selling  are  by  a  vast  population,  there  are 
from  time  to  time  vast  accumulations  of  credits 
which  in  a  country  of  developed  banking  methods 
are  in  greater  part  in  the  form  of  credit  entries 
on  the  books  of  banks. 

While  all  of  the  credits  on  the  books  of  banks 
may  be  utilized  in  the  buying  of  utilities  of  any 
kind,  it  is  to  be  remembered  that  in  the  produc- 
tion of  final  utilities  in  the  proportions  in  which 
they  meet  wants,  efforts  must  be  applied  in  vari- 
ous proportions ;  that  is,  there  must  be  a  relativity 
of  effort.  If  this  relativity  is  to  be  promoted,  the 
credits  on  the  books  of  banks  must  be  expended 
in  ways  that  further  that  promotion.  If  all  of 
these  credits  were  expended  by  their  owners  for 
final  utilities  for  their  immediate  personal  use  or 
gratification,  there  could  be  no  further  production 
beyond  the  extent  to  which  these  final  utilities  then 
in  existence  would  maintain  that  vitality  from 
which  productive  effort  emanates.  If  the  accumu- 
lation of  credits  were  expended  for  instruments 
of  production,  a  disproportionate  proportion  of 
the  available  effort  would  be  applied  in  the  provi- 
sion of  instruments  of  production.  They  would 
so  increase  in  number  and  capacity  that  there 
could  not  be  the  provision  of  substance  sufficient 
to  occupy  them  in  transformation,  nor  sale  for  the 
utilities  into  which  it  were  transformed.  If  all  of 
these  credits  were  expended  for  intermediate  utili- 
ties, there  would  be  a  disproportionate  applica- 


SUMMARY,  RESTATEMENT  367 

tion  of  effort  in  the  transformation  of  substance 
into  intermediate  utilities,  with  the  result  that 
there  would  be  intermediate  utilities  exceeding  the 
demand  for  transformation  into  final  utilities,  and 
there  would  also  be  an  inordinate  demand  for  sub- 
stance to  be  transformed  into  intermediate  utili- 
ties. If  all  of  those  credits  were  expended  for 
substance,  a  disproportionate  proportion  of  effort 
would  be  enlisted  in  the  production  of  substance, 
and  there  would  be  less  of  effort  available  for  its 
transformation.  If  all  of  these  credits  were  in- 
vested in  sources  of  substance,  there  would  not  be 
credits  available  for  the  increased  production  of 
substance  requisite  to  bring  return  on  the  invest- 
ment, nor  would  there  be  sale  for  the  increased 
volume  of  substance  produced. 

These  extreme  suppositions  cast  light  upon 
what  really  does  happen  when  disproportionate 
investment  has  been  made  in  utilities  of  any  kind. 
For  example,  a  common  form  of  disproportionate 
investment  is  in  instruments  of  production  with 
capacity  for  the  transformation  of  substance  or  of 
intermediate  utilities  in  excess  of  the  demand  for 
the  final  utilities  into  which  they  are  transformed. 
This  is  colloquially  designated  as  having  too  much 
** locked  up  in  fixed  capital."  If  an  individual  is 
to  continue  applying  his  effort  in  production,  he 
must  expend  of  his  credits  in  the  proportions  that 
maintain  the  man-days  from  which  his  effort  ema- 
nates.   If  a  business  organization  is  to  continue 


S68  THE  FLOW  OF  VALUE 

in  production,  it  must  expend  of  its  credits  in  due 
proportions  for  wages  and  that  which  it  utilizes. 
If  a  nation  is  to  continue  in  production,  all  of  the 
accumulated  credits  of  its  citizens  must  be  ex- 
pended in  the  proportions  that  further  production. 

Variation  in  the  Purchasing  Power  of  the  Dollar 

The  dollar  at  any  given  time  gives  command 
over  the  measures  of  respective  utilities  that  then 
have  the  exchange  ratio  of  the  dollar.  Therefore 
all  wage-workers,  who  at  a  given  time  and  place 
receive  the  same  number  of  dollars  as  wages,  have 
the  same  command  over  the  same  measures  of  util- 
ities. If  the  prices  expressed  in  dollars  of  several 
utilities  be  advanced,  the  same  wage  expressed  in 
dollars  would  give  command  over  smaller  meas- 
ures of  these  utilities.  Thus  while  wage  ex- 
pressed in  dollars  would  remain  the  same,  the 
purchasing  power  of  that  wage  would  have  di- 
minished, and  therefore  the  man-hours  applied 
by  the  wage-worker  would  not  give  him  command 
over  the  same  volume  of  want-units.  On  the  other 
hand,  if  there  be  a  decrease  in  the  price  of  these 
utilities  as  expressed  in  dollars,  a  given  wage  will 
buy  more  want-units.  The  ultimate  test,  there- 
fore, by  which  wage  at  one  time  and  place  may  be 
compared  with  wage  at  another  time  or  place  is 
not  the  dollars  in  which  it  is  expressed,  but  the 
want-units  which  may  be  purchased  with  the  man- 
hours  applied. 


SUMMARY,  RESTATEMENT  369 

The  changing  relations  between  effort  applied 
and  wants  met  that  cause  a  rise  or  fall  in  the  price 
of  one  utility  or  of  several  utilities,  may  through 
extended  periods  cause  a  rise  or  a  fall  in  the  prices 
expressed  in  dollars  of  virtually  all  utilities. 
Thus,  during  periods  of  transition  from  prosper- 
ity to  depression  and  from  depression  to  pros- 
perity, the  ratios  of  effort  applied  to  wants  met 
are  expressed  at  different  times  by  a  widely  vary- 
ing number  of  dollars.  It  may  be  that  the  wages 
expressed  in  dollars  received  for  the  application 
of  a  given  number  of  man-hours  at  one  time  will 
then  buy  more  want-units  than  can  be  bought  at 
another  time  with  the  wages  expressed  in  a 
greater,  even  a  considerably  greater  number  of 
dollars  then  received  for  the  application  of  an 
equivalent  measure  of  effort.  It  may  be  that  the 
profit  expressed  in  a  given  number  of  dollars  re- 
ceived from  the  sale  of  a  given  measure  of  utili- 
ties at  one  time  will  then  buy  greater  measures  of 
man-hours  than  can  be  bought  at  another  time 
with  profit  expressed  in  a  greater  number  of  dol- 
lars then  received  from  the  sale  of  an  equivalent 
measure  of  utilities.  It  may  be  likewise  with  rent 
and  with  interest. 

For  example,  if  the  population  were  to  increase 
much  more  rapidly  than  the  production  of  the 
essential  utilities,  or  if  because  of  universal  scant 
crops  the  supply  was  in  decreasing  ratio  to  the 
demand,  it  would  follow  that  the  same  number  of 


S70  THE  FLOW  OF  VALUE 

dollars  which  had  bought  these  utilities  in  certain 
proportions  would  no  longer  buy  them  in  these 
proportions.  Man-hours  applied  would  not  have 
command  over  the  same  number  of  want-units. 
All  persons  would  have  to  pay  more  of  the  dollars 
to  their  credit  for  these  utilities  if  they  bought 
them  in  the  same  proportions  as  before.  As  every 
person  would  have  fewer  of  dollars  remaining 
after  he  had  purchased  these  essential  utilities,  a 
number  of  persons  in  the  descending  scale  of  in- 
comes would  have  to  do  without  nonessential  utili- 
ties and  others  would  have  to  do  without  both  non- 
essential and  less  essential  utilities ;  and  those  with 
smallest  incomes  would  be  unable  to  buy  even 
these  essential  utilities  in  the  proportions  requisite 
to  maintain  their  productivity.  As  the  demand 
for  nonessential  utilities  and  less  essential  utilities 
decreased,  employers  engaged  in  their  production, 
if  they  paid  the  same  total  of  dollars  as  wages, 
would  have  to  obtain  more  dollars  for  their  prod- 
ucts. But  if  they  were  to  obtain  a  higher  price 
expressed  in  dollars,  the  demand  for  their  prod- 
ucts would  further  diminish.  They  would  be 
obliged  to  dispense  with  the  services  of  a  number 
of  their  employees.  As  producers  of  utilities  of 
many  kinds  reduced  the  number  of  their  employees, 
there  would  be  an  increasing  number  who  would 
compete  for  employment.  The  tendency  would  be 
for  wages  as  expressed  in  dollars  to  be  reduced. 
Therefore  a  still  further  increasing  number  of 


SUMMARY,  RESTATEMENT  371 

persons  would  have  to  dispense  with  nonessential 
and  less  essential  utilities.  Their  production 
would  be  further  decreased;  employers  engaged 
in  that  production  would  discharge  more  of  their 
employees. 

As  employees  were  discharged  and  many  em- 
ployers ceased  production,  the  demand  for  the 
essential  utilities,  the  advance  in  the  price  of 
which  had  brought  about  the  depression,  would 
diminish.  In  the  extreme,  the  aged  and  infirm, 
sickly  children,  all  of  those  on  the  margin  of  exist- 
ence, would  perish.  It  was  an  inadequate  supply 
of  these  essential  utilities  that  brought  about  the 
advancing  prices  and  the  ensuing  diminution  in 
the  production  of  other  utilities.  It  may  be  that 
the  higher  prices  expressed  in  dollars  for  essen- 
tial utilities  would  for  a  time  give  the  producer  of 
substance  greater  command  over  other  utilities, 
but  the  curtailment  of  the  production  of  other  util- 
ities would  bring  higher  prices  expressed  in  dol- 
lars for  them,  and  thus  farmers  and  other  pro- 
ducers of  substance  would  have  to  pay  higher 
prices  expressed  in  dollars  for  all  the  things  they 
purchased. 

The  decrease  in  the  supply  of  the  essential  utili- 
ties would  mean  the  impairment  of  the  productive 
efforts  of  a  portion  of  the  population.  If  there 
were  no  increase  in  their  production  there  would 
not  only  be  a  continued  diminution  in  the  produc- 
tion of  other  utilities,  but  a  large  proportion  of 


372  THE  FLOW  OF  VALUE 

the  population  would  remain  out  of  employment. 
The  unemployed  would  have  to  work  where  they 
could  find  employment.  There  would  be  an  in- 
creasing number  of  those  who  would  have  to 
apply  their  efforts  directly  in  return  for  food  and 
shelter.  They  would  have  to  turn  to  the  farmers 
who  produce  food  and  can  supply  some  sort  of 
shelter.  Thus  while  the  farmers  might  not  in- 
crease the  volume  of  substance  in  relation  to  the 
effort  applied,  they  would,  because  of  the  greater 
total  of  effort  applied,  increase  the  total  volume  in 
relation  to  population.  The  effort  of  a  greater 
portion  of  the  population  would  be  applied  in  the 
production  of  the  essential  utilities,  and  a  smaller 
proportion  would  remain  for  the  production  of 
other  utilities. 

As  wage-workers  competed  for  employment, 
wages  expressed  in  dollars  would  be  reduced.  As 
employers  in  nearly  all  kinds  of  production  paid 
smaller  totals  of  dollars  as  wages,  they  would  pro- 
duce utilities  at  a  lower  cost  in  dollars  and  there- 
fore could  sell  them  at  a  lower  price  in  dollars. 
They  might  obtain  profit  from  a  volume  of  sales 
that  during  a  period  of  higher  wages  expressed  in 
dollars  would  not  have  yielded  profit.  As  their 
profit  increased  it  would  give  command  over  the 
efforts  of  an  increasing  number  of  those  out  of  em- 
ployment. If  the  production  of  the  essential  util- 
ities were  increased  in  relation  to  the  effort  ap- 
plied, increasing  proportions  of  effort  could  be 


SUMMARY,  RESTATEMENT  373 

applied  in  other  production,  and  thus  there  would 
be  the  rising  tide  of  prosperity. 

In  the  various  stages  of  the  transition  from 
prosperity  to  depression  and  depression  to  pros- 
perity, the  dollar  indicates  varying  relations  be- 
tween man-hours  applied  and  want-units  pro- 
duced. There  would  at  any  stage  of  the  transi- 
tion be  a  greater  or  less  command  of  man-hours 
applied  in  one  kind  of  production  over  man-hours 
applied  in  other  kinds  of  production.  It  also 
would  mean  that  the  same  relation  between  wages 
and  prices  would  be  expressed  at  different  periods 
by  a  different  number  of  dollars.  That  is,  a  given 
number  of  man-hours  applied  during  prosperity 
might  have  a  higher  ratio  to  the  dollar  than  the 
same  number  of  equivalent  man-hours  applied 
during  depression;  and  likewise  a  given  number 
of  want-units  might  have  a  lower  ratio  to  the  dol- 
lar in  a  time  of  depression  than  an  equivalent 
number  of  want-units  of  the  same  kind  in  a  time 
of  prosperity.  As  depression  deepens,  prices  of 
want-units  expressed  in  dollars  fall  more  rapidly 
than  wages  expressed  in  dollars.  This  means  that 
diminishing  demand  affects  the  want-utilities  pro- 
duced before  it  affects  the  man-hours  applied  in 
their  production.  It  is  the  diminishing  demand 
of  purchasers  for  the  want-utilities  that  causes 
diminishing  deftiand  of  employers  for  employees. 
As  prosperity  advances,  prices  of  want-units  ex- 
pressed in  dollars  rise  more  rapidly  than  wages 


374  THE  FLOW  OF  VALUE 

expressed  in  dollars.  Increasing  demand  of  pur- 
chasers for  want-utilities  leads  to  an  increasing 
demand  of  employers  for  employees  in  their  pro- 
duction. 

It  is  the  credits  received  by  employers  from  the 
sale  of  utilities  for  the  production  of  which  they 
are  responsible  that  give  them  command  over 
man-hours  to  be  applied  in  further  production. 
If  the  prices  of  want-units  as  expressed  in  dollars 
rise,  a  given  number  of  dollars  will  not  give  com- 
mand over  the  same  number  of  man-hours.  If  the 
prices  of  want-units  as  expressed  in  dollars  fall,  a 
given  number  of  dollars  will  purchase  a  greater 
number  of  man-hours.  If  wages  as  expressed  in 
dollars  rise,  an  employer,  other  things  equal,  will 
receive  from  the  application  of  a  given  proportion 
of  effort  smaller  profit.  If  wages  as  expressed  in 
dollars  fall,  the  employer,  other  things  equal,  will 
receive  from  the  application  of  a  given  proportion 
of  effort  a  higher  profit.  Thus  at  different  times 
different  degrees  of  profit  as  expressed  in  dollars 
may  be  derived  from  the  application  of  the  same 
proportion  of  effort  in  the  production  of  the  same 
volume  of  utilities.  Likewise  the  same  measure 
of  profit  as  expressed  in  dollars  may  at  different 
times  give  command  in  the  form  of  prices  over 
different  volumes  of  want-units,  and  therefore  in 
the  form  of  wages  over  different  nfeasures  of  man- 
hours. 

During  a  period  of  deepening  depression  profit 


SUMMARY,  RESTATEMENT  376 

of  all  business  organizations  tends  to  decline,  divi- 
dends on  stocks  tend  to  be  reduced  or  passed. 
And  in  the  extreme  there  may  be  doubt  that  inter- 
est will  be  paid  on  bonds.  Therefore  the  prices 
obtainable  for  stocks  and  bonds  will  decline.  The 
decline  may  be  precipitated  by  those  foreseeing 
the  depression,  who  offer  securities  for  sale,  and 
during  the  depression  by  those  whose  resources 
are  so  reduced  that  they  will  be  obliged  to  sell  se- 
curities to  obtain  immediately  utilizable  credits. 
This  increasing  supply  of  securities  for  sale  will 
be  coincident  with  a  falling  demand.  Because  of 
the  general  diminution  of  profit  there  will  be  fewer 
persons  with  credits  that  can  be  devoted  to  their 
purchase.  As  with  rising  prosperity  such  organ- 
izations again  obtain  the  profit  that  enables  them 
to  resume  or  to  increase  the  payment  of  dividends, 
the  prices  of  stocks  and  bonds  tend  to  rise.  The 
rise  is  accelerated  as  credits  again  accumulate  in 
the  possession  of  those  who  desire  to  invest  them. 
Changes  in  the  purchasing  power  of  the  dollar, 
that  is  in  the  value  of  the  dollar,  such  as  have  been 
indicated  in  the  immediately  preceding  pages  are 
due  solely  to  varying  interrelations  between  the 
supply  of  and  the  demand  for  man-hours  to  be  ap- 
plied in  production  and  for  the  want-units  pro- 
duced. They  typify  changes  in  the  relations  be- 
tween effort  applied  and  wants  met  that  give  rise 
to  what  in  essence  is  the  dollar.  In  the  actual  de- 
velopment of  industry  and  commerce  the  value  of 


376  THE  FLOW  OF  VALUE 

the  dollar  has  been  determined  in  part  by  such 
changing  interrelations,  and  in  part  by  changes  in 
the  supply  of  what  is  called  money,  which  have 
not  always  coincided  with  changes  in  the  interre- 
lations between  the  supply  of  and  the  demand  for 
utilities. 


XX 

MONEY 

Under  the  adjustment  of  buying  and  selling  by 
debit  and  credit  entries  of  record,  the  production 
of  utilities  would  increase  as  there  was  increase 
in  the  application  of  effort,  and  in  the  effectiveness 
of  its  application.  The  volume  of  production 
would  be  limited  only  by  the  matter  to  which  force 
was  applied,  and  by  the  force  applied  to  it.  The 
flow  of  debits  and  credits  would  be  limited  only  by 
buying  and  selling  in  accordance  with  the  inter- 
relations between  supply  and  demand. 

The  actual  development  of  the  mechanism  of 
buying  and  selling,  especially  in  its  earlier  stages, 
was  very  different  from  the  hypothetical  develop- 
ment outlined  in  Chapters  V  to  IX,  and  often  im- 
posed other  limits  upon  the  volume  of  utilities 
produced  and  sold.  The  later  stages  of  the  actual 
development  have  more  closely  approximated 
those  of  the  hypothetical  development. 

The  supposititious  debit  entries  and  credit  en- 
tries of  the  early  stages  of  the  hypothetical  devel- 
opment were  of  the  nature  of  records  of  transac- 
tions. The  keeper  of  the  supposititious  record 
would  have  had  no  assurance  that  the  certificates 

377 


878  THE  FLOW  OF  VALUE 

which  came  to  him  were  exact  records  of  actual 
transactions,  except  the  integrity  of  his  deposi- 
tors. The  honesty  and  accuracy  of  the  keeper  of 
the  record  would  be  the  only  assurance  of  the  de- 
positors that  he  did  not  make  debit  entries  and 
credit  entries  to  the  account  of  one  or  another  that 
did  not  arise  from  actual  transactions.  A  certifi- 
cate of  any  depositor  would  have  to  be  accepted  by 
the  custodian  of  the  record  as  evidence  of  the  sale 
of  utilities  for  the  units  of  exchange  specified,  and 
all  entries  would  have  to  be  accepted  as  veritable 
record  of  such  transactions.  There  was  not  at  the 
time  of  the  first  buying  and  selling  the  intelligence 
that  could  have  conceived  such  a  system.  The 
predatory  instinct  implanted  in  the  nature  of  man 
and  which  has  not  as  yet  been  entirely  eradicated 
makes  it  impossible  even  to  imagine  that  there 
ever  was,  or  is  now,  the  universal  integrity  requi- 
site to  the  installation  and  continuance  of  such  a 
system. 

Moreover,  the  first  buying  and  selling  was  not 
of  a  nature  that  would  give  rise  to  such  a  concep- 
tion. Then  the  effort  expended  in  the  production 
of  things  that  were  exchanged,  and  in  the  exchange 
of  things  for  things,  was  a  small  part  of  human 
activity.  The  intermediary  of  exchange  at  first 
was  the  kind  of  a  thing  useful  in  itself  and  in 
common  use.  Such  an  intermediary  evolved  into 
the  coin.  A  coin  was  accepted  in  exchange  be- 
cause it  was  a  definite,  concrete  thing,  which  every 


MONEY  879 

person  knew  every  other  person  would  accept. 
Intermediaries  of  exchange  came  to  be  designated 
as  money.  As  anybody  could  get  anything  he 
wanted  with  money,  everybody  wanted  money. 
Thus  money  came  to  be  regarded  not  primarily 
as  that  which  facilitated  exchange,  but  that  with 
which  things  were  bought  and  for  which  things 
were  sold.  This  led  to  the  conception  that  the 
primary  object  of  buying  and  selling  was  to  get 
money.  As  the  human  being  of  low  mental  devel- 
opment is  ever  allured  by  that  which  is  bright  and 
shines,  productivity  may  have  been  stimulated  by 
the  desire  to  obtain  gold  and  silver  as  those  lus- 
trous metals  were  made  into  coins. 

It  is  obvious,  however,  that  as  things  were  ex- 
changed for  money  and  money  was  exchanged  for 
things,  there  would  have  to  be  determined  the 
measure  in  which  things  of  any  kind  would  ex- 
change for  a  given  measure  of  money.  Thus  there 
would  have  to  be  a  unit  of  money  in  terms  of  which 
would  be  expressed  the  respective  measures  of 
different  things  which  could  be  obtained  in  ex- 
change for  that  unit.  That  monetary  unit  could 
be  a  coin  of  any  kind  of  metal ;  it  could  be  of  any 
specified  weight  and  bear  any  agreed  and  accepted 
designation.  The  coin  most  frequently  used  natu- 
rally would  be  of  such  a  weight  and  size  that  a 
number  of  them  readily  could  be  carried  on  the 
person  and  conveniently  be  passed  from  one  per- 
son to  another.     The  unit  of  exchange  naturally 


380  THE  FLOW  OF  VALUE 

designated  such  measures  of  utilities  as  commonly 
entered  into  exchange.  Thus  the  designation  of 
the  coin  most  commonly  in  use  and  the  designation 
of  the  unit  of  exchange  would  tend  to  coincide. 
To  facilitate  the  buying  and  selling  of  smaller  or 
larger  measures  of  utilities  there  would  come  to 
be  other  coins  bearing  a  fractional  or  a  multiple 
relation  to  the  coin  of  common  use.  For  the  pur- 
pose of  this  immediate  discussion,  it  will  suflSce  to 
designate  the  coincident  unit  of  exchange  and 
monetary  unit  simply  as  the  coin. 

The  question  arises  as  to  how  there  would  be 
determined  the  measures  in  which  respective  utili- 
ties would  be  exchanged  for  the  coin.  A  certain 
measure  of  utilities  of  each  particular  kind  would 
have  to  be  paid  for  the  coin,  which  is  the  same  as 
to  say  that  a  coin  would  buy  a  certain  measure  of 
nitilities  of  each  particular  kind.  Thus,  notwith- 
standing the  delusion  that  money  was  the  primary 
object  of  attainment,  everybody  except  the  miser, 
either  consciously  or  subconsciously,  would  seek 
money  for  what  he  could  obtain  with  it.  Other- 
wise the  coin  would  not  be  the  unit  of  exchange; 
it  would  not  be  money.  Inevitably  the  ratio  of 
utilities  to  the  coin  would  be  fixed  by  the  ratio  of 
utilities  to  utilities  as  determined  by  their  respec- 
tive relations  to  human  wants.  In  a  condition  of 
untrammeled  production  and  exchange,  such  as 
has  been  presupposed  in  the  hypothetical  develop- 
ment, the  ratio  of  utilities  to  the  coin  would  be 


MONEY  381 

determined  in  the  same  manner  as  the  ratio  of 
utilities  to  the  dollar  as  outlined  in  that  develop- 
ment. Instead  of  each  sale  being  accompanied  by 
debit  entries  of  record,  it  would  be  consummated 
by  the  passing  of  coin  from  buyer  to  seller.  The 
parting  with  coin  obtained  in  a  previous  sale  of 
utilities  would  serve  the  same  purpose  as  a  debit 
entry  against  a  credit  entry.  The  coin  that 
passed  to  the  seller  would  serve  the  same  purpose 
as  an  entry  to  his  credit.  Those  most  effective  in 
production  or  in  buying  and  selling  would,  other 
things  equal,  receive  the  greatest  number  of  coins, 
would  expend  coins  in  smaller  proportions  than 
the  less  effective,  and  thus  the  money  in  their  pos- 
session would  increase.  As  any  one  obtained  a 
surplus  of  coins  over  those  necessary  to  supply 
his  wants,  he  could  extend  his  business  or  he  could 
purchase  other  utilities,  and  thus  be  instrumental 
in  furthering  the  development  of  other  specialized 
vocations. 

The  use  of  the  coin,  however,  would  have  an 
effect  upon  prices  for  which  there  is  no  counter- 
part in  our  hypothetical  development.  Under 
that  development  there  would  be  no  limit  to  the 
number  of  dollars  of  record  except  the  prices  of 
utilities  and  the  volume  of  transactions.  That  is, 
the  dollars  of  debit  entry  and  credit  entry  would 
be  limited  alone  by  the  volume  of  production  for 
which  there  was  demand.  When,  however,  the 
coin  was  the  sole  intermediary  of  exchange,  the 


882  THE  FLOW  OF  VALUE 

only  exchanges  that  were  possible  were  by  the  bar- 
tering of  utilities  directly  for  utilities,  or  the  ex- 
change of  utilities  for  coins.  But,  because  of  the 
insurmountable  inconvenience  of  barter,  as  pro- 
duction increased  in  volume  and  variety,  ex- 
changes by  barter  necessarily  became  so  few  in 
relation  to  those  for  coin  that  transactions  virtu- 
ally were  limited  by  the  quantity  of  coin  in  ex- 
istence. This  would  be  the  case  even  though, 
because  of  a  greater  ** rapidity  of  circulation'* 
or  ''velocity  of  circulation,"  a  greater  num- 
ber of  exchanges  were  effected  with  a  given 
quantity  of  coin  at  one  time  or  place  than  at 
another  time  or  place.  As  coin  was  the  ac- 
cepted and  customary  intermediary  of  exchange, 
virtually  every  one  who  wanted  to  sell  would  en- 
deavor to  obtain  coin,  and  every  one  who  wanted 
to  buy  would  be  obliged  to  have  coin  for  payment. 
Therefore,  when  coins  were  abundant  in  relation 
to  the  transactions  to  which  demand  and  supply 
gave  rise,  a  greater  number  of  coins  could  be 
obtained  for  a  given  measure  of  utilities  than 
when  coins  were  scant  in  relation  to  the  transac- 
tions it  was  desired  to  effect.  That  is,  the  ratio 
of  utilities  to  the  coin  would  tend  to  be  determined 
not  only  by  the  various  interrelations  between 
supply  and  demand  dependent  upon  human  activ- 
ity and  human  wants,  but  also  by  the  available 
quantity  of  coins.  While  the  ratio  of  utilities  of 
a  given  kind  to  utilities  of  other  kinds  would  rise 


MONEY  383 

and  fall  with  variations  in  the  interrelations  be- 
tween supply  and  demand,  the  ratio  of  all  utilities 
to  the  coin  would  rise  and  fall  as  transactions 
were  greater  or  less  in  relation  to  the  available 
supply  of  coins.  It  is  inconceivable  but  that,  when 
the  available  supply  of  coin  did  not  increase  dur- 
ing a  considerable  period  in  which  there  was  im- 
petus to  increasing  production,  buying,  and  selling, 
that  impetus  would  be  checked  by  the  diminishing 
proportion  of  available  money.  Coins  would  be 
obtained  in  exchanges  that  were  imperative;  in 
others  they  would  be  more  difficult  of  attainment ; 
transactions  that  otherwise  might  have  taken 
place  would  be  prohibited  by  the  lack  of  coins. 
The  exchange  ratios  of  utilities  in  general  would 
increase  in  relation  to  the  coins;  prices  expressed 
in  terms  of  the  coin  would  fall.  On  the  contrary, 
if  at  a  given  time  there  were  an  increase  in  the 
supply  of  coins  in  vastly  greater  proportion  than 
the  increase  in  the  transactions  which  it  was  de- 
sired to  effect,  coins  would  be  easier  to  obtain. 
The  exchange  ratios  of  utilities  in  general  would 
decrease  in  relation  to  the  coin;  prices  expressed 
in  terms  of  the  coin  would  rise. 

For  example,  let  it  be  supposed  that  at  a  given 
time  the  price  of  a  given  utility  was  one  coin  for 
four  units :  then  the  exchange  ratio  of  that  utility 
to  the  coin  would  be  four  to  one :  four  units  of  the 
utility  would  buy  one  unit  of  the  coin,  and  one  unit 
of  the  coin  would  buy  four  units  of  the  utility. 


384  THE  FLOW  OF  VALUE 

Thus  the  price  of  the  unit  of  coin  in  terms  of  the 
utility  would  be  four;  and  the  price  of  the  unit 
of  utility  in  terms  of  the  coin  would  be  one-fourth. 
If  at  a  subsequent  time  the  price  of  that  utility 
became  one  coin  for  three  units,  three  units  of  that 
utility  would  buy  one  unit  of  coin,  and  one  unit 
of  coin  would  buy  three  units  of  the  utility.  The 
exchange  ratio  of  the  utility  to  the  coin  would 
have  decreased,  becoming  three  to  one.  The  price 
of  the  unit  of  coin  in  terms  of  the  utility  would 
become  three,  and  the  price  of  the  unit  of  utility 
in  terms  of  the  coin  would  become  one-third ;  that 
is,  the  price  of  the  utility  expressed  in  terms  of 
the  coin  would  have  risen.  Or  if  at  a  subse- 
quent time  the  price  of  that  utility  became  one 
coin  for  six  units,  six  units  of  the  utility  would 
buy  one  unit  of  coin,  and  one  unit  of  coin  would 
buy  six  units  of  the  utility.  The  exchange  ratio 
of  the  utility  to  the  coin  would  have  increased,  be- 
coming six  to  one.  The  price  of  a  unit  of  coin  in 
terms  of  the  utility  would  become  six,  and  the 
price  of  the  unit  of  the  utility  in  terms  of  the 
coin  would  become  one-sixth;  that  is,  the  price 
of  the  utility  in  terms  of  the  coin  would  have 
fallen.  Thus  when  coins  were  abundant  in  rela- 
tion to  utilities  in  general,  more  of  coins  would 
have  to  be  paid  for  a  given  measure  of  a  utility ; 
the  price  of  the  utility  as  expressed  in  coin  would 
rise  because  more  coins  would  have  to  be  paid  for 
it.    On  the  contrary,  when  coins  were  scant  in  re- 


MONEY  385 

lation  to  utilities  in  general,  it  would  take  a 
greater  measure  of  utilities  to  buy  a  coin ;  the  price 
of  the  utility  as  expressed  in  coin  would  fall  be- 
cause less  of  coin  could  be  obtained  for  it. 

There  is  yet  another  radical  difference  between 
our  hypothetical  development  and  the  actual  de- 
velopment through  the  use  of  coin.  Requisite  to 
the  certificate  that  passed  from  the  buyer  to  the 
seller  and  the  making  of  the  debit  entry  and  the 
credit  entry  at  the  time  of  each  transaction  would 
be  nothing  else  than  writing  utensils  and  books  of 
record.  But  requisite  to  exchange  by  means  of 
coins  are  metal  and  means  of  coining.  The  metals 
were  also  utilized  in  the  making  of  various  utili- 
ties, but  it  was  their  use  in  coins  that  gave  them, 
especially  the  precious  metals,  a  wider  usefulness. 
The  utilities  of  ordinary  use  are  bought  when  they 
are  wanted  and  sold  when  there  are  purchasers. 
But  as  all  utilities  were  sold  for  coin  and  all  utili- 
ties were  purchased  with  coin,  the  use  of  the 
metals  as  money  caused  other  utilities  to  be  ob- 
tained for  them  in  greater  measure  than  if  they 
had  not  been  so  used.  It  also  follows  that  those 
who  supplied  the  metals  used  for  coins  were  en- 
abled to  obtain  utilities  in  return  for  their  efforts 
put  forth  in  the  production  of  those  metals.  That 
is,  they  obtained  utilities  without  engaging  in  the 
production  of  utilities  that  directly  ministered  to 
the  wants  of  the  body  or  the  mind.    In  increasing 


886  THE  FLOW  OF  VALUE 

degree  it  was  the  usefulness  of  the  precious  metals 
as  intermediaries  for  the  exchange  of  utilities  that 
gave  them  value. 

It  came  about  that  those  who  obtained  coins 
which  they  did  not  use  in  buying  and  selling  them- 
selves, loaned  them  to  others,  making  a  charge  for 
their  use.  Thus  evolved  usury,  a  word  that  be- 
came opprobrious  because,  before  there  was  a  con- 
siderable development  of  industry  and  commerce, 
the  loan  of  money  in  nearly  all  cases  was  to  those 
in  need,  the  money-lender  obtaining  gain  because 
of  their  adversity.  But  as  industry  and  commerce 
progressed,  the  loaning  of  money  came  to  be  in 
greater  proportion  to  those  engaged  in  production, 
buying,  and  selling.  The  payment  for  its  use  in 
facilitating  production  came  to  be  designated  as 
interest  instead  of  usury.  As  the  word  'inter- 
est" in  this  case  means  *'a  claim  to,"  **the  right 
to  participate,"  it  does  not  connote  payment  for 
the  use  of  money  so  much  as  payment  to  the  owner 
of  that  to  which  he  has  claim,  which  includes  a  part 
of  that  produced  by  the  utilization  of  money  pro- 
vided by  him.  The  change  in  the  designation  was 
concurrent  with  the  change  in  the  significance. 

It  became  virtually  impossible  for  any  business 
to  be  conducted  without  money.  A  person  having 
sources  of  substance  needed  money  wherewith  to 
pay  wages  for  their  cultivation,  and  for  gathering 
and  extracting  substance.  A  person  transform- 
ing substance,  whether  into  instruments  of  pro- 


MONEY  387 

duction  or  into  final  utilities,  needed  money  where- 
with to  purchase  it.  Merchants  who  bought  utili- 
ties for  subsequent  sale  needed  money  wherewith 
to  pay  for  them.  No  one  could  continue  in  busi- 
ness unless  he  had  the  money  requisite  to  the  buy- 
ing and  selling  essential  to  that  continuity.  Thus 
the  supplying  of  money  to  those  who  needed  it 
became  a  business  of  great  importance.  The  sup- 
plying of  money  was  of  a  different  nature  from 
supplying  utilities  for  use  and  consumption,  be- 
cause he  who  supplied  money  received  money  back 
again.  Thus  those  who  supplied  money  were 
known  as  money-lenders. 

It  became  the  practice  of  those  owning  coin  or 
bullion  to  deposit  it  for  safety  with  the  keeper  of 
a  chest.  The  keeper  of  the  chest,  the  caisse,  be- 
came the  cashier  and  evolved  into  the  banker. 
Thus  was  the  beginning  of  the  modern  bank.  It 
became  the  practice  of  a  bank  to  issue  notes  prom- 
ising to  pay  coin  instead  of  the  coin  itself.  Those 
believing  that  a  bank  would  redeem  its  promise  on 
demand  would  accept  the  bank  note  in  lieu  of  coin. 
The  first  issues  of  notes  called  for  no  more  coin 
or  bullion  than  a  bank  had  in  its  custody.  But  as 
a  bank  note  was  transferred  between  buyers  and 
sellers  in  a  succession  of  transactions,  it  came  to 
be  the  practice  of  many  a  bank  to  issue  notes  prom- 
ising to  pay  in  the  aggregate  more  coin  than  it  had 
in  its  custody.  Within  limits  it  was  safe  in  doing 
this  because  of  the  outstanding  notes  only  a  por- 


388  THE  FLOW  OF  VALUE 

tion  were  presented  for  redemption  from  time  to 
time.  Governments  that  purchased  bullion  for 
transformation  into  coin  also  issued  notes  promis- 
ing to  pay  coin  on  demand,  and  these  also  came  to 
be  issued  by  many  a  government  in  excess  of  the 
coin  or  bullion  held  against  the  notes. 

Thus  the  issue  of  bank  notes  and  government 
notes  not  only  obviated  the  necessity  for  the  actual 
transfer  of  coin  at  every  purchase,  and  its  often 
inconvenient  and  hazardous  conveyance  from 
place  to  place,  but  it  also  augmented  the  supply 
of  money.  As  bank  notes  and  government  notes 
were  promises  to  pay  coin,  the  coin  remained  the 
unit  of  exchange.  The  ratio  of  utilities  to  the  unit 
of  exchange  continued  to  be  determined  not  only 
by  various  interrelations  between  human  effort 
and  human  wants,  but  also  by  the  relation  of  the 
available  supply  of  money  to  the  volume  of  trans- 
actions it  was  desired  to  effect.  When  the  supply 
of  ** currency,"  the  term  including  coin,  govern- 
ment notes,  and  bank  notes,  was  abundant  in  rela- 
tion to  the  transactions  it  was  desired  to  effect, 
prices  expressed  in  terms  of  the  coin  would  be 
high.  When  the  supply  of  currency  was  scant  in 
relation  to  the  transactions  it  was  desired  to 
effect,  prices  expressed  in  terms  of  the  coin  would 
be  low.  Prices  obtainable  at  a  future  time  for 
utilities  produced  in  the  present  might  fluctuate, 
not  only  because  of  variations  in  the  interrelations 
between  the  supply  of  and  demand  for  utilities, 


MONEY  389 

but  because  of  variations  in  the  supply  of  and 
demand  for  money. 

When  coin  was  deposited  with  the  keeper  of  a 
chest,  it  was  subject  to  payment  on  the  order  of  the 
owner,  either  to  himself  or  to  another,  and  it  was 
so  also  as  government  notes  and  bank  notes  came 
into  use  and  entered  into  the  deposits  made  in 
banks.  With  the  continuous  making  of  deposits, 
it  came  about  that  the  orders  upon  a  bank  at  any 
given  time  called  usually  for  the  payment  of  only 
a  fraction  of  its  total  deposits.  Thus  a  bank  came 
to  loan  that  portion  of  its  deposits  for  which  it 
believed  there  would  not  be  demand  until  the  loans 
were  paid.  For  such  loans  it  obtained  interest. 
It  was  necessary  that  a  bank  keep  a  reserve  of 
coins  for  the  payment  of  bank  notes  of  its  issue 
upon  demand,  and  a  reserve  of  currency  for  the 
payment  of  checks  upon  it  for  which  currency  was 
demanded. 

When  an  order — what  we  now  designate  as  a 
check — was  drawn  upon  a  bank  by  a  depositor  in 
that  bank  in  favor  of  another  depositor  in  that 
bank,  all  that  was  necessary  to  the  adjustment  was 
for  the  bank  to  debit  the  account  of  the  drawer  of 
the  check  and  to  credit  the  account  of  the  payee. 
That  is,  debit  entry  and  credit  entry  were  made 
on  the  books  of  the  banks  which  involved  no  trans- 
fer of  coin,  government  notes,  or  bank  notes. 
When  there  was  the  attainment  of  this  stage  in  the 


390  THE  FLOW  OF  VALUE 

actual  development  of  the  mechanism  of  exchange, 
its  course  came  to  have  a  certain  approximation 
to  that  of  our  hypothetical  development. 

When  it  was  perceived  that  a  check  drawn  upon 
one  bank  in  favor  of  a  depositor  in  another  bank 
could  be  deposited  in  that  other  bank,  there  cred- 
ited to  the  depositor,  and  thence  forwarded  to 
the  bank  upon  which  it  was  drawn,  to  be  there 
debited  to  the  drawer,  the  proportion  of  coin,  bank 
notes,  or  government  notes  required  in  effecting 
transactions  vastly  diminished  in  relation  to  the 
volume  of  the  transactions.  As  there  came  to  be 
the  drawing  of  checks  upon  one  bank  that  were 
deposited  with  another  bank,  there  also  came  to  be 
the  drawing  of  checks  upon  the  other  bank  that 
were  deposited  with  the  first  bank.  Each  bank 
would  forward  to  the  other  for  collection  the 
checks  that  were  drawn  upon  it.  This  practice  so 
increased,  especially  in  the  United  States,  that 
checks  drawn  upon  any  bank  in  the  country  could 
be  deposited  with  any  other  bank.  Then  devel- 
oped the  practice  of  one  bank  keeping  an  account 
with  another.  As  checks  drawn  upon  one  bank 
were  deposited  with  another  and  vice  versa,  en- 
tries on  the  books  of  each  bank  were  made  to  its 
debit  and  to  the  credit  of  the  other,  currency  not 
being  required  except  in  the  settlement  of  a  bal- 
ance due  from  one  to  another.  As  it  was  imprac- 
ticable for  every  bank  to  have  an  account  with 
every  other  bank,  it  came  to  be  the  practice  of  the 


MONEY  391 

banks  in  a  certain  area  to  keep  an  account  with  a 
large  bank  in  a  principal  city.  Then  all  of  the 
checks  drawn  against  the  banks  of  that  area  were 
forwarded  by  them  to  the  banks  of  the  principal 
city,  with  which  they  respectively  had  accounts. 
A  bank  in  that  area  would  need  to  send  currency 
to  its  correspondent  bank  in  the  large  city  only 
when  it  was  necessary  to  pay  a  balance  to  its  debit. 
The  banks  in  the  city  presented  one  to  another  the 
checks  received  by  each  that  were  drawn  upon  an- 
other, currency  not  being  necessary  except  in  the 
settlement  of  the  balance  by  which  the  amount  of 
the  checks  drawn  upon  one  bank  exceeded  the 
amount  of  those  drawn  upon  another. 

In  certain  of  the  larger  cities  there  has  been  a 
further  development  which  has  obviated  the  neces- 
sity for  the  transfer  of  currency  from  one  bank  to 
another  even  in  the  settlement  of  balances.  At 
the  clearing  house,  an  institution  where  represent- 
atives of  the  banks  of  the  city  assemble  daily  with 
the  checks  received  by  their  respective  banks,  each 
of  these  banks  has  on  deposit  coin  and  government 
notes  in  an  amount  larger  than  necessary  to  cover 
any  balance  that  probably  will  result  from  any 
clearing.  On  the  books  of  the  clearing  house  after 
each  clearing,  each  bank  is  debited  with  the  bal- 
ance against  it,  or  credited  with  the  balance  in  its 
favor.  As  an  entry  is  made  to  its  debit,  currency 
in  that  amount  passes  from  its  credit  in  the  clear- 
ing house  to  the  credit  of  the  various  banks  in  the 


392  THE  FLOW  OF  VALUE 

amounts  respectively  due  them.  Thus  on  the 
books  of  banks,  checks  are  offset  against  checks; 
on  the  books  of  the  large  banks  in  a  principal  city, 
checks  drawn  against  many  banks  in  a  large  area 
are  offset  against  checks  drawn  in  favor  of  these 
respective  banks;  and  in  a  very  large  city  checks 
drawn  against  each  of  a  multitude  of  banks  that 
have  accounts  with  the  banks  of  that  city  are  offset 
against  checks  deposited  with  them  that  have  been 
drawn  against  other  banks.  Thus  the  proportion 
of  currency  required  in  the  transactions  of  indus- 
try and  commerce  has  so  fallen  that  it  has  been 
estimated  to  be  less  than  10  per  cent,  of  the  aggre- 
gate. 

The  fact  that  there  is  not  at  any  time  in  exist- 
ence more  than  a  small  fraction  of  the  coin,  gov- 
ernment notes,  and  bank  notes  that  would  be  re- 
quired to  effect  the  volume  of  transactions  at  that 
time  in  case  currency  were  demanded  in  each 
transaction  strongly  indicates  that  the  measures 
in  which  respective  utilities  are  bought  and  sold, 
are  no  longer  determined  in  more  than  a  small 
degree  by  the  volume  of  such  currency.  The  ratio 
of  utilities  to  the  dollar  is  determined  primarily 
by  the  various  interrelations  between  supply  and 
demand  that  depend  upon  human  activity  and 
human  wants.  The  belief  still  held  by  many  that 
these  ratios  are  determined  solely  by  the  relation 
of  the  volume  of  utilities,  and  the  volume  of  trans- 
actions to  the  volume  of  money,  is  a  lingering  sur- 


MONEY  393 

vival  of  the  conception  engendered  in  the  period 
before  the  adjustment  of  transactions  by  checks 
and  entries  on  the  books  of  banks  vastly  exceeded 
the  adjustments  effected  by  the  direct  passing  of 
currency. 

Inasmuch,  however,  as  the  unit  of  exchange  is 
expressed  in  terms  of  the  monetary  unit,  which 
signifies  a  given  weight  of  gold,  it  is  still  required 
that  gold  shall  be  paid  for  a  government  note  or  a 
bank  note  upon  demand.  It  is  also  required  that 
currency  shall  be  paid  for  a  check  upon  demand. 
As  bank  notes  and  government  notes  are  redeem- 
able in  gold,  it  is  thus  virtually  decreed  that  a 
check  shall  be  paid  in  gold  upon  demand.  It  is 
obligatory  upon  the  Government  to  keep  a  reserve 
of  gold  from  which  government  notes  can  be  re- 
deemed, and  that  a  bank  keep  a  reserve  of  cur- 
rency from  which  checks  may  be  paid  upon  de- 
mand. Various  calculations  have  been  made  at 
various  times  of  the  ratio  which  such  a  bank  re- 
serve shall  bear  to  its  deposits.  This  reserve  has 
varied  from  25  per  cent,  to  about  6  per  cent.  If, 
for  example,  it  be  decreed  that  a  bank  shall  have 
reserve  to  the  amount  of  10  per  cent,  of  its  de- 
posits, it  can  not  make  entry  of  deposits  in  an 
amount  greater  than  ten  times  its  reserve;  or, 
rather,  it  must  always  build  up  its  reserve  to  an 
amount  not  less  than  10  per  cent,  of  its  deposits. 
In  this  case  the  aggregate  of  all  credit  balances  in 
all  of  the  banks  at  a  given  time  could  not  exceed 


394  THE  FLOW  OF  VALUE 

ten  times  the  reserve  in  the  possession  of  these 
banks.  Therefore  the  volume  of  transactions  at 
times  may  be  limited  by  the  requirement  as  to  the 
reserve,  just  as  in  the  period  when  coin  was  the 
only  money  the  volume  of  transactions  may  at 
times  have  been  limited  by  the  available  supply  of 
coin.  ''Scarcity  of  money,"  occasioned  by  the  in- 
ability of  the  banks  at  a  particular  time  to  increase 
their  reserve,  and  therefore  to  allow  further  in- 
crease in  their  deposits,  leads  to  an  increase  in  the 
rate  of  interest  charged  for  loans,  and  thus  may 
cause  a  diminution  in  the  flow  of  utilities.  The 
proportion  which  it  has  been  decreed  the  reserve 
must  bear  to  deposits  has  tended  to  diminish. 
The  greater  the  degree  in  which  transactions  are 
effected  by  means  of  checks  without  the  use  of 
currency,  the  greater  is  the  degree  in  which  there 
is  buying  and  selling  through  the  instrumentality 
of  debit  entries  and  credit  entries  on  the  books  of 
banks.  And,  therefore,  the  greater  is  the  degree 
in  which  the  actual  development  of  the  mechanism 
of  exchange  coincides  with  the  mechanism  of  our 
hypothetical  development. 

To  the  attainment  of  this,  the  present  stage,  has 
been  necessary  a  tremendous  advance  in  the  per- 
ception of  what  production,  buying,  and  selling 
really  mean,  and  a  subduing  of  the  predatory  in- 
stinct. In  times  past  monarchs  have  debased 
coin,  governments  and  banks  have  issued  notes  in 
excess  of  the  amount  for  which  there  was  any  pos- 


MONEY  395 

sibility  of  redemption.  These  practices  have,  at 
times  and  places,  led  to  such  uncertainty  as  to 
what  really  could  be  obtained  for  currency  in  cir- 
culation, as  to  cause  the  prices  of  utilities  to  fluc- 
tuate violently.  Such  fluctuation  has  been  aside 
from  any  variation  caused  by  changes  in  the  inter- 
relations between  supply  and  demand.  Coin  and 
notes  have  been  counterfeited.  Depositors  in 
banks  have  resorted  to  subterfuge  in  order  to  ob- 
tain credit  entries  in  excess  of  those  legitimately 
acquired  through  the  sale  of  utilities.  Directors, 
officers,  and  employees  of  banks  have  at  times  vio- 
lated their  trust  by  direct  theft,  and  at  times  by 
indulgence  in  or  connivance  at  other  unwarranted 
practices.  But  as  banking  operations  have  more 
and  more  come  to  be  safeguarded,  the  adjustment 
of  transactions  by  means  of  checks  and  debit  and 
credit  entries  has  come  more  and  more  to  approxi- 
mate the  status  of  the  adjustment  of  our  hypo- 
thetical development. 

The  custodian  of  our  hypothetical  place  of  rec- 
ord would  not  need  to  have  resources  of  his  own 
beyond  those  necessary  for  his  subsistence.  It  is 
different  with  an  actual  bank.  It  must  have  prop- 
erty in  resources  which  it  maintains  against  the 
bank  notes  it  has  issued.  Inasmuch  as  it  makes 
loans,  it  must  have  resources  wherewith  to  sustain 
loss  in  case  they  are  not  paid.  It  must  have  re- 
sources wherewith  to  make  good  losses  incurred, 


396  THE  FLOW  OF  VALUE 

whether  from  defection  of  depositors,  or  defection 
due  to  lack  of  honesty,  or  lack  of  judgment  on  the 
part  of  its  officers  and  employees.  A  prudent 
bank  will  not  accept  the  account  of  a  depositor 
without  assurance  that  he  has  resources  wherewith 
he  can  make  good  losses  that  otherwise  would  fall 
upon  the  bank. 

As  the  proportion  of  transactions  adjusted  by 
means  of  checks  and  bank  entries  has  come  vastly 
to  exceed  those  adjusted  by  the  passing  of  cur- 
rency, banks  have  necessarily  come  to  rely  in  great 
measure  upon  the  honesty  of  the  depositors  and 
the  depositors  upon  the  honesty  of  the  banks. 
Safeguards  against  dishonesty  have  promoted  in- 
tegrity, but  the  waning  of  dishonesty  is  due  in 
greater  degree  to  the  force  that  has  prompted  the 
safeguards,  the  force  of  the  widening  conviction 
that  modern  business  can  not  be  conducted  without 
the  integrity  of  all  of  those  engaged  in  its  proc- 
esses. If  absolute  honesty  had  actually  been  ob- 
tained, and  there  were  universal  recognition  of 
the  fundamental  significance  of  production,  buy- 
ing, and  selling,  a  bank,  in  so  far  as  the  receipt  of 
checks  and  the  making  of  entries  is  concerned, 
would  need  to  be  no  more  than  the  place  of  record 
of  our  hypothetical  development.  The  modern 
bank,  however,  performs  other  functions. 

Before  passing  to  a  discussion  of  these  func- 
tions, it  is  desirable  again  to  emphasize  the  fact 


MONEY  397 

that  the  more  highly  developed  the  practice  of 
adjusting  transactions  by  means  of  checks,  drafts, 
bills  of  exchange,  acceptances,  and  other  instru- 
ments which  give  rise  to  debit  and  credit  entries 
of  bank  record,  the  greater  is  the  degree  in  which 
prices,  as  expressed  in  units  of  exchange,  are  de- 
termined by  interrelations  between  the  supply  of 
and  demand  for  various  utilities;  and  the  less  is 
the  degree  in  which  prices,  as  expressed  in  units 
of  exchange,  are  determined  by  the  supply  of 
money  in  existence.  As  it  is  the  buying  and  sell- 
ing of  utilities  that  give  rise  to  debit  entries  and 
credit  entries  of  bank  record,  the  volume  of  money 
in  the  form  of  bank  credit  tends  to  depend  upon 
the  volume  of  buying  and  selling,  and  not  upon  the 
volume  of  currency.  Before  such  adjustment  of 
payments  had  developed,  those  who  bought  and 
sold  were  bidders  not  only  for  the  utilities  that 
were  bought  and  sold,  but  they  were  bidders  also 
for  the  supply  of  currency  with  which  payments 
were  effected. 

If  the  ratios  of  utilities  to  the  dollar  were  deter- 
mined solely  by  interrelations  between  force  ap- 
plied and  wants  met,  the  prices  of  all  utilities 
could  not  simultaneously  rise  nor  could  they  si- 
multaneously fall.  Ordinarily,  when  we  say  that 
prices  are  rising,  we  mean  no  more  than  that  of 
certain  kinds  of  utilities  smaller  measures  than 
theretofore  have  the  exchange  ratio  of  one  dollar. 
Of  certain  other  utilities,  it  may  be  that  the  same 


398  THE  FLOW  OF  VALUE 

measures  can  be  obtained  for  the  dollar,  while  of 
still  other  utilities  it  may  be  that  larger  measures 
can  be  obtained  for  the  dollar.  It  would  be  differ- 
ent if  at  a  given  time  only  one-half  the  measure  of 
all  utilities  could  be  obtained  for  one  dollar  as  at 
a  preceding  time.  Then  we  should  say  that  prices 
had  doubled.  But  only  apparently  would  they 
have  doubled.  While  it  would  take  twice  as  many 
dollars  to  obtain  the  same  measure  of  any  utility 
as  at  a  preceding  time,  the  actual  exchange  ratios 
of  utilities  would  be  the  same,  and,  therefore,  the 
actual  prices  would  be  the  same. 

Thus  in  a  period  when  coin  was  the  only  cur- 
rency, the  prices  of  all  utilities,  as  expressed  in 
units  of  exchange,  might  rise  or  fall  with  approxi- 
mate simultaneity.  For  example,  if  a  sudden  in- 
flux of  gold,  caused  by  the  opening  of  new  mines, 
were  to  have  doubled  the  supply  of  gold,  it  might 
be  that  for  a  gold  dollar  only  one-half  the  measure 
of  utilities  of  any  kind  could  be  obtained  at  a  given 
time  as  at  a  preceding  time;  that  is,  it  would  re- 
quire two  gold  dollars  to  purchase  the  same  meas- 
ure of  utilities  of  any  kind  as  at  the  preceding 
time.  Obviously,  this  would  not  be  an  actual  in- 
crease in  prices.  It  would  be  merely  halving  the 
unit  of  exchange,  and  giving  the  half  the  same 
designation  as  previously  applied  to  the  whole. 
Similarly,  when  government  notes  and  bank  notes 
entered  into  the  currency,  if  at  a  given  time  the 
supply   of   this   paper   currency   suddenly   were 


MONEY  399 

doubled,  it  might  be  that  the  prices  of  all  utilities 
apparently  would  be  doubled.  But  here  again  the 
prices  would  really  not  be  doubled ;  here  again  the 
unit  of  exchange  would  be  halved  and  the  half  be 
given  the  designation  previously  applied  to  the 
whole. 

Essential  to  the  use  of  any  form  of  money  is  the 
belief  of  those  who  accept  it  that  they  can  obtain 
in  exchange  for  it  utilities  having  the  exchange 
ratio  indicated  on  its  face.  This  belief  found 
immediate  concrete  substantiation  when  utilities 
were  exchanged  directly  for  other  utilities.  Sub- 
stantiation was  likewise  concrete,  but  in  somewhat 
less  degree,  when  utilities  were  exchanged  for  coin. 
The  substantiation  is  only  potentially  concrete 
with  other  forms  of  currency,  the  use  of  which  de- 
pends upon  belief  in  the  integrity  of  the  govern- 
ment or  bank  of  issue.  This  potentiality  is  real- 
ized when  coin  is  demanded  in  exchange  for  bank 
notes  and  government  notes,  but  this  realization 
depends  upon  there  not  being  the  simultaneous  de- 
mand for  the  redemption  in  gold  of  bank  notes  and 
government  notes  in  an  amount  exceeding  the 
amount  of  the  gold  available  for  their  redemption. 
This  belief  in  the  case  of  bank  credit  finds  substan- 
tiation in  the  confidence  that  for  the  amount  speci- 
fied in  a  check  on  a  bank,  and  in  credit  of  bank 
record,  property  can  be  obtained  in  utilities  hav- 
ing the  ratio  of  exchange  indicated  by  the  amount 
of  the  credit.    The  reserve  of  specie  held  against 


400  THE  FLOW  OF  VALUE 

deposits  is  only  a  fraction  of  these  deposits.  It 
would  be  impossible  for  all  checks  to  be  redeemed 
in  gold  in  case  gold  is  demanded  for  them.  This 
is  demonstrated  in  case  of  a  panic  when  the  banks 
in  order  to  conserve  their  supply  of  gold  refuse  to 
pay  out  gold ;  that  is,  by  their  refusal  to  pay  gold 
at  the  time  when  it  is  in  greatest  demand.  There- 
fore, the  basis  of  what  is  called  money  is  property 
in  utilities,  or  in  that  which  gives  command  over 
utilities.  Therefore,  the  ultimate  basis  of  money 
is  value. 

The  development  of  the  mechanism  of  exchange, 
in  so  far  as  it  can  be  traced  throughout  the  histo- 
rical period,  has  been  through  stages  that  doubt- 
less could  not  have  been  other  than  they  were,  or 
in  different  sequence.  It  would  be  interesting  to 
know  what  mechanism  would  be  adopted  if  the 
civilized  world  were  suddenly  thrown  into  a  state 
of  coma,  from  which  it  emerged  with  the  fullest 
recollection  of  all  that  pertained  to  production, 
buying,  and  selling,  but  absolutely  without  recol- 
lection of  coins,  currency,  or  banking.  It  is  incon- 
ceivable that  with  the  intelligence  prevailing  in  all 
matters  except  this,  there  could  be  the  reversion  to 
barter,  or  to  the  use  of  such  things  as  cattle,  shells, 
or  tobacco  as  intermediaries.  It  is  even  improb- 
able that  there  would  be  reliance  exclusively  upon 
the  metals  as  money.  An  inkling  of  what  might 
happen  is  afforded  by  two  examples  of  what  ac- 


MONEY  401 

tually  has  happened  when  the  mechanism  of  ex- 
change has  been  deranged. 

During  the  panic  of  1893,  when  currency  was 
unobtainable  from  the  banks,  certain  mining  com- 
panies, lumber  companies,  and  even  merchants  in 
out-of-the-way  places,  issued  scrip — pieces  of 
paper  on  which  were  respectively  printed  prom- 
ises to  pay  a  dollar,  or  a  multiple  of  a  dollar,  or  a 
fraction  of  a  dollar.  This  scrip  was  accepted  for 
utilities  and  paid  for  utilities  in  the  communities 
of  issue  without  thought  that  it  ever  would  be  re- 
deemed in  gold.  It  became  currency  because  of 
the  belief  that  utilities  could  be  obtained  for  it, 
and  because  of  reliance  upon  the  integrity  of  the 
source  of  issue.  After  the  revolution  in  Russia 
had  so  disorganized  the  financial  structure  that 
there  was  no  belief  that  gold  or  silver  could  be 
obtained  for  notes  issued  by  the  government, 
''grain  notes"  and  ''goods  notes"  were  issued  in 
many  places,  and  accepted  by  peasants,  artisans, 
and  shopkeepers  in  preference  to  government 
notes.  Thus  even  in  that  desolated  and  benighted 
country  arose  the  perception  that  money  is  ac- 
tually based  on  utilities,  and  not  upon  the  metals, 
however  precious. 


XXI 

DEVELOPED   FUNCTIONS   OF  A   MODERN    BANK 

As  an  important  function  of  the  old-time  money- 
lender was  the  supplying  of  money  in  return  for 
the  receiving  of  interest,  so  also  an  important 
function  of  a  modern  bank  is  to  arrange  for  the 
utilization  of  credits  by  those  who  believe  they  can 
utilize  them  to  advantage,  and  can  give  assurance 
of  repayment.  Thus  a  commercial  bank  may  loan 
not  only  the  credits  in  which  it  has  property,  but 
a  proportion  of  the  credits  of  its  depositors,  in  re- 
turn for  interest.  An  investment  bank  acts  as  an 
intermediary  between  those  who  have  credits  they 
desire  to  place  in  the  way  of  that  utilization  which 
may  bring  interest  or  profit,  and  those  who  desire 
to  obtain  the  right  to  their  utilization.  In  return 
for  its  service,  the  investment  bank  charges  a  com- 
mission to  one  party,  or  to  the  other,  or  to  both. 
These  services  of  banks  are  still  designated  as 
^'supplying  money"  or  ''providing  money,"  and 
the  securing  of  the  right  to  the  utilization  of 
credits  is  colloquially  designated  as  ** getting 
money."  The  right  to  the  utilization  of  credits 
that  are  the  property  of  another  may  be  desired : 

1.  By  one  who  has  property  in  sources  of  sub- 

402 


FUNCTIONS  OF  A  MODERN  BANK      403 

stance  such  as  farm,  forest,  or  mine,  which  he 
believes  he  can  utilize  toward  the  attainment  of 
profit,  but  who  has  not  the  credits  that  would  en- 
able him  to  obtain  the  equipment  and  pay  the 
wages  requisite  to  that  utilization.  He  may  sell 
a  proprietary  interest  in  such  physical  assets,  or 
he  may  borrow  the  credits,  pledging  the  assets  for 
the  return  of  the  principal  and  the  payment  of  the 
interest. 

2.  By  an  organization  established  in  business, 
having  property  in  substance,  or  in  its  sources, 
and  instruments  of  production,  which  desires  to  in- 
crease these  assets,  and  its  volume  of  production, 
but  has  not  the  requisite  capital. 

By  one  who  believes  there  is  the  opportunity 
for  the  attainment  of  profit  through  the  produc- 
tion of  certain  utilities,  but  has  not  the  credits  that 
would  enable  him  to  provide  the  substance,  instru- 
ments of  production,  or  pay  the  wages  essential  to 
inaugurating  the  enterprise.  Of  such  may  be  one 
who  desires  to  extend  the  use  of  a  new  invention, 
or  perhaps  one  who  believes  he  can  find  profitable 
market  for  an  increased  volume  of  utilities  of  a 
kind  that  are  already  produced.  He  may  form  an 
organization,  issuing  capital  stock,  the  shares  of 
which  he  sells ;  or  issuing  bonds,  which  he  sells ;  or 
both.  If  he  retain  little  or  none  of  the  stocks  and 
the  bonds,  and  takes  no  part  in  the  administration 
of  the  organization,  he  is  merely  a  promoter.  If 
he  has  secured  as  capital  the  credits  essential  to 


404  THE  FLOW  OF  VALUE 

the  inauguration  of  production  and  continues  in 
the  direction  of  that  production,  he  is  an  enter- 
priser, and  becomes  an  employer  employing  both 
labor  and  capital. 

3.  By  a  business  organization  which  has  sold 
utilities  for  deferred  payment  but  can  not  wait 
until  payment  is  made  by  the  purchasers  because 
it  needs  at  once  to  utilize  the  credits ;  or  by  a  busi- 
ness organization  which  has  bought  utilities  for 
which  it  can  not  make  immediate  payment,  or  does 
not  desire  to  make  payment  until  they  are  sold, 
but  for  which  payment  the  seller  is  not  willing  to 
wait. 

4.  By  one  who  desires  to  buy  at  the  current 
prices  stocks  or  bonds  for  which  he  believes  a 
higher  price  can  be  obtained  in  the  future,  but  who 
has  not  the  credits  or  does  not  desire  to  expend 
the  credits  requisite  to  immediate  and  complete 
payment. 

The  supplying  of  credits  to  be  used  as  capital 
is  not  a  function  of  a  modern  commercial  bank. 
The  supplying  of  credit  for  immediate  utilization 
to  customers  of  the  third  of  these  classes  and  of 
the  fourth  of  these  classes  are  two  of  its  important 
functions. 

Many  a  business  organization,  believing  it  can 
obtain  profit  through  the  purchase  of  utilities  for 
which  it  does  not  make  immediate  payment,  or 
from  the  sale  of  utilities  for  which  it  does  not 
receive  immediate  payment,  resorts  to  a  bank. 


FUNCTIONS  OF  A  MODERN  BANK      405 

Thus  it  is  enabled  to  engage  in  transactions 
greater  in  volume  and  value  than  would  be  possi- 
ble if  it  utilized  no  more  than  its  own  working 
capital.  Credits  of  bank  entry,  like  coin,  govern- 
ment notes,  or  bank  notes,  are  liquid.  That  is, 
they  are  value  which  readily  flows  in  any  transmu- 
tation that  their  possessor  may  desire  to  effect. 
Thus  they  are  distinguished  from  "fixed  capital" 
or  ** fixed  assets,"  such  as  sources  of  substance 
and  instruments  of  production,  for  which  there  is 
not  always  immediate  sale,  and  which  may  have 
to  be  sold  in  their  entirety  if  at  all.  It  is  working 
capital  that  pays  for  substance,  wages,  and  other 
running  expenses,  that  furthers  the  flow  of  utili- 
ties in  the  channels  of  commerce.  The  utilization 
of  bank  credits  facilitates  that  flow.  Let  us  arrive 
at  the  significance  of  this  function  of  a  modem 
commercial  bank  through  some  consideration  of 
its  effect. 

Awaiting  payment  for  utilities  that  have  been 
sold  is  different  from  awaiting  that  return  upon 
debits  incurred  in  production  which  can  not  be 
obtained  until  the  resulting  utilities  have  been 
sold.  Payment  for  utilities  subsequent  to  the 
time  of  their  sale  may  be  designated  as  deferred 
payment. 

The  pajnuent  of  bills  to  a  retail  dealer  for  cur- 
rent supplies,  or  of  rent  to  a  landlord  at  the  cus- 
tomary intervals  of  a  week  or  a  month,  is  not  to  be 
considered  deferred  payment  because  there  has 


406  THE  FLOW  OF  VALUE 

been  that  concurrent  production  and  consumption 
of  utilities  which  is  balanced  at  these  intervals. 
That  is,  such  payment  at  intervals  no  more  than 
registers  the  transfer  of  credits  received  in  re- 
turn for  effort  put  forth  or  utilities  sold  during 
the  period  in  which  the  indebtedness  is  incurred. 
The  longer  the  period  during  which  an  account 
thus  runs,  the  longer  does  the  payee  have  to  await 
the  credits  due  to  him.  Therefore,  the  longer 
does  he  have  to  wait  until  he  may  utilize  those 
credits  in  the  replacement  and  in  the  attainment  of 
further  profit.  Payment  to  retail  dealers  and 
landlords  for  final  utilities,  deferred  beyond  the 
time  at  which  settlement  is  due,  may  liave  to  bo 
met  from  production  subsequent  to  the  period  in 
which  the  utilities  were  received.  This  especially 
will  be  the  case  with  those  in  adversity  who  have 
not  been  able  to  earn  credits  to  offset  their  debits. 
Such  deferment  may  be  by  the  procrastinating,  or 
by  the  unscrupulous  who  do  not  intend  to  pay  at 
all,  or  by  the  thriftless  or  imprudent  who  are  not 
able  to  make  their  intentions  good.  In  the  pro- 
portion to  which  the  extension  of  the  period  of 
settlement  results  in  ''bad  debts"  there  will  bo 
diminished  the  credits  from  which  dealers  can  pay 
for,  or  replenish,  their  stock.  If  the  proportion 
of  bad  debts  be  large,  the  retail  dealer  may  be 
forced  out  of  business.  He  may  be  led  to  charge 
higher  prices  than  he  otherwise  would,  in  order  to 
make  up  from  those  who  pay  the  deficit  of  those 


FUNCTIONS  OF  A  MODERN  BANK      407 

who  do  not  pay.  There  are  many  dealers  who 
charge  less  when  payment  is  immediate  than  when 
•it  is  deferred. 

There  are  those  without  the  means  to  make  im- 
mediate payment  for  final  utilities,  such  as  a 
dwelling,  a  piano,  an  automobile,  who  promise  de- 
ferred payment  in  instalments,  thus  undertaking 
to  put  forth  effort  or  sell  utilities  in  the  future 
that  will  bring  return  sufficient  to  enable  them  to 
make  the  payments.  This  practice  with  many  ex- 
tends to  the  purchase  of  furniture  and  clothing. 
It  obviously  involves  the  element  of  risk  to  both 
buyer  and  seller  that  is  absent  in  case  of  imme- 
diate payment.  The  seller  may  not  be  willing  to 
incur  even  a  temporary  deprivation  of  the  credits 
due  to  him  unless  the  debtor  make  payment  to  him 
in  addition  to  the  price.  Thus  the  price  of  utili- 
ties bought  on  the  instalment  plan  is  higher  than 
that  of  utilities  for  which  immediate  payment  is 
made,  because  in  the  higher  price  is  included  an 
allowance  for  interest.  Obviously,  interest  thus 
paid  is  of  a  different  nature  from  interest  paid 
for  the  utilization  of  credits  in  further  production. 
As  it  adds  to  the  price  the  purchaser  would  other- 
wise pay  for  the  final  utility,  it  diminishes  the 
amount  of  his  credits  available  for  the  purchase 
of  other  utilities. 

In  vastly  the  greater  volume  deferred  payments 
are  availed  of  by  those  engaged  in  the  processes 
of  production,  of  buying  and  selling,  in  order  to 


408  THE  FLOW  OF  VALUE 

facilitate  or  augment  their  operations.  Such  re- 
sort to  deferred  payments  is  akin  to  borrowing. 
When  a  man  responsible  for  production  resorts 
to  deferred  payments  or  borrows,  he  undertakes 
to  utilize  that  for  which  he  has  not  paid  in  the 
production  of  utilities  that  will  enable  him  to  make 
the  payment  plus  the  interest.  The  possibility  of 
this  attainment  lies  in  the  inevitability  of  a  con- 
tinuing demand  for  utilities,  but  exactly  the  vol- 
ume of  particular  utilities  for  which  there  will  be 
demand  can  not  be  foretold,  nor  the  conditions 
that  will  affect  the  prices.  To  the  degree  that 
judgment  and  capacity  outweigh  the  adventurous 
in  the  man  who  resorts  to  deferred  payments  or 
borrowing,  the  greater  is  the  probability  of  his 
obtaining  profit;  and,  conversely,  the  higher  the 
element  of  the  adventurous,  the  greater  is  the 
probability  of  his  incurring  loss.  He  who  lends, 
or  he  who  accepts  promise  of  deferred  payment, 
must  place  a  certain  reliance  upon  the  judgment 
and  capacity  of  the  debtor,  and,  therefore,  must 
exercise  discretion  as  to  the  possession  df  these 
qualities  by  a  man  before  he  becomes  his  creditor. 
Even  though  tangible  security  is  ordinarily  re- 
quired, he  must  exercise  this  discretion. 

As  a  rule,  if  the  amounts  are  considerable,  de- 
ferred payments  or  loans  will  not  be  accorded  ex- 
cept upon  the  pledge  of  property  by  the  debtor, 
which  will  pass  into  the  possession  of  the  creditor 
in  case  the  indebtedness  is  not  paid.    Therefore, 


FUNCTIONS  OF  A  MODERN  BANK      409 

it  is  customary  for  him  who  undertakes  in  consid- 
erable amount  to  make  deferred  payments  or  to 
repay  a  loan,  to  execute  a  written  promise,  which 
not  only  obligates  him  to  pay  the  indebtedness 
with  interest,  but  accords  the  creditor  the  right  to 
take  of  that  in  which  the  debtor  has  property  in 
case  the  debt  is  not  paid.  A  written  promise  may 
accord  to  the  creditor  the  right  to  take  of  any  of 
the  debtor's  property;  of  such  is  the  ordinary 
promissory  note.  It  may  accord  the  creditor  the 
right  to  take  certain  specified  property;  in  such 
case  a  promissory  note  is  accompanied  by  a  mort- 
gage specifying  the  property  pledged. 

As  a  rule,  a  promissory  note  promises  deferred 
payment  for  liquid  utilities,  or  the  return  of  cred- 
its the  utilization  of  which  is  acquired  for  a  lim- 
ited period.  As  a  rule,  a  mortgage  secures  de- 
ferred payments  for  fixed  utilities,  or  repayment 
of  credits,  the  utilization  of  which  is  required  for 
a  long  period.  Payment  secured  by  mortgage  is 
often  in  instalments;  frequently  the  interest  is 
paid  at  intervals  and  the  principal  at  maturity. 

A  promissory  note  may  be  given,  for  example, 
by  a  farmer  who  does  not  want  to  pay  for  agri- 
cultural implements  until  he  has  sold  his  crop ;  by 
a  manufacturer  who  does  not  want  to  pay  for  sub- 
stance until  he  has  transformed  it  and  sold  the  re- 
sultant utilities ;  by  a  merchant  who  does  not  want 
to  pay  for  utilities  taken  into  his  stock  until  he  has 
sold  them.    A  third  party,  however,  with  credits 


410  THE  FLOW  OF  VALUE 

beyond  his  desire  for  utilization  may  place  credit 
at  the  disposal  of  the  payee  in  exchange  for  the 
note,  which  he  will  hold  until  its  maturity,  making 
a  charge  for  the  right  accorded  the  payee  to  draw 
against  the  credit  in  the  meantime.  The  third 
party  to  whom  resort  is  made  for  such  discounting 
of  a  promissory  note,  as  a  rule,  is  a  commercial 
bank.  It  places  the  amount  of  the  note,  less  the 
discount — the  designation  of  interest  paid  in  ad- 
vance instead  of  at  maturity — to  the  credit  of  the 
payee,  against  which  he  is  entitled  to  draw  the 
same  as  though  he  had  received  immediate  pay- 
ment for  the  utilities  and  deposited  that  payment 
to  his  credit.  If  he  had  received  immediate  pay- 
ment, the  credit  obtained  from  the  sale  of  the  re- 
sults of  past  effort  would  have  been  paid  for  the 
results  of  past  effort.  What  the  bank  does  is  to 
place  at  his  immediate  disposal  a  credit  obtained 
by  others  from  the  sale  of  the  results  of  past  effort 
which  he  repays  by  the  credits  obtained  from  the 
sale  of  the  results  of  effort  in  the  future. 

This  function  of  a  bank  in  essence  is  the  same  as 
was  the  advancing  of  coin  by  a  money  lender  in 
the  period  before  the  adjustment  of  transactions 
by  bank  entries  had  developed.  In  large  propor- 
tion the  credit  entries  on  the  books  of  commercial 
banks  to-day  arise  from  deposits  of  immediate 
payment.  As  the  amount  of  a  discounted  note  is 
placed  to  the  credit  of  the  payee,  credit  entries 
also  arise  in  large  proportion,  often  in  greater 


FUNCTIONS  OF  A  MODERN  BANK      411 

proportion,  from  the  discount  of  deferred  pay- 
ments. 

If  the  various  interrelations  between  supply  and 
demand  make  it  impossible  for  the  drawer  of  a 
promissory  note  to  obtain  prices  for  the  utilities 
he  undertakes  to  sell  sufficient  to  provide  the 
credit  that  will  enable  him  to  pay  the  note  and 
the  interest,  he  will,  if  he  can  not  renew  the  note, 
finally  be  obliged  to  sell  other  property  wherewith 
to  make  up  the  deficit.  If  the  demand  for  such 
utilities  increase  more  rapidly  than  the  supply 
that  would  otherwise  be  provided,  those  who,  by 
promise  of  deferred  payment,  are  enabled  to  take 
part  in  increasing  the  supply,  may  meet  a  demand 
that  otherwise  would  not  be  met.  But,  if  this  pro- 
duction, under  the  promise  of  future  payraent, 
leads  to  such  an  augmentation  in  the  supply  as 
to  cause  a  fall  in  prices,  loss  may  be  incurred  by 
part  of  the  producers,  or  even  by  all  of  the  pro- 
ducers, of  such  utilities.  That  is,  this  conduct  of 
business  on  what  is  commonly  known  as  credit  will 
have  resulted  in  overproduction.  The  sale  of 
other  utilities,  in  order  to  meet  a  promised  de- 
ferred payment,  means  that  the  results  of  past 
efforts  disposed  of  for  this  purpose  will  not  have 
been  utilized  by  their  seller  in  subsequent  compen- 
satory production,  but  will  have  been  utilized  to 
make  good  the  deficit  of  unremunerated  produc- 
tion. Thus  the  drawer  of  the  note  sustains  loss. 
If  he  can  not  pay  it  or  has  not  property  which 


412  THE  FLOW  OF  VALUE 

can  be  sold  for  enough  to  pay  it,  the  payee  will 
have  to  assume  the  loss.  If  the  payee,  in  case 
the  note  has  been  discounted,  can  not  pay  the  note, 
or  has  not  property  for  which  sufficient  to  make 
payment  can  be  obtained,  the  loss  will  fall  upon 
the  bank.  Upon  whomsoever  the  loss  falls,  it 
means  that  effort  has  not  brought  remunerative 
return,  and  that  other  results  of  past  effort  have 
been  utilized  to  make  good  the  deficit  caused  by 
effort  wasted  in  unremunerated  production. 

It  is  the  impulse  to  secure  gain  that  leads  a 
business  organization  engaged  in  production  to 
lease,  to  borrow,  to  promise  deferred  payments. 
Such  incurring  of  indebtedness  may  lead  to  an 
increase  in  the  volume  of  production  and  the  va- 
riety of  production  with  benefit  to  all.  Or  it  may 
so  stimulate  the  volume  of  production  of  certain 
utilities  with  a  resultant  fall  in  prices  that  it  will 
force  the  least  efficient  out  of  production.  Other 
things  equal,  these  will  be  those  whose  costs  of 
production  were  highest.  The  payment  of  rent  or 
of  interest  will  undoubtedly  add  to  a  producer's 
cost,  but  those  who  have  incurred  this  obligation 
may  be  so  much  more  efficient  that  their  costs  of 
production  will  be  less  than  those  of  other  pro- 
ducers who  do  not  pay  interest  or  rent. 

At  times  of  severe  competition,  when  prices 
have  become  unremunerative,  those  who  do  not 
have  to  pay  interest  may  prefer  to  discontinue 
production  rather  than  operate  at  a  loss.    But 


FUNCTIONS  OF  A  MODERN  BANK      413 

those  who  are  under  obligation  to  pay  interest 
may  feel  impelled  to  continue  their  operations  even 
at  a  loss,  in  order  to  obtain  the  credits  that  will 
enable  them  to  pay  interest,  and  thus  permit  them 
to  continue  in  control  of  the  resources  which  they 
utilize  in  production.  This  is  peculiarly  the  case 
with  large  corporations,  whose  promises  to  make 
deferred  payments  are  in  the  form  of  bonds  se- 
cured by  mortgage,  which  runs  for  a  long  period. 
If  at  any  time  there  were  that  inability  to  pay  the 
interest  which  would  result  in  foreclosure,  the 
corporation  might  lose  the  right  to  utilize  the 
property  pledged.  Therefore,  it  is  impelled  to 
continue  its  operations  notwithstanding  loss,  in 
the  hope  that  it  will  be  made  good  by  future  profit. 
When  a  business  organization,  which  has  un- 
dertaken to  repay  a  loan  or  make  deferred  pay- 
ments for  sources  of  substance  and  instruments  of 
production,  has  suffered  such  diminution  of  re- 
sources that  it  can  not  meet  or  extend  its  obliga- 
tions, debits  incurred  by  it  have  not  been  trans- 
muted into  corresponding  credits,  but  the  sources 
of  substance  and  instruments  of  production  do 
not  pass  out  of  existence.  If  they  have  been  ac- 
quired under  promise  of  rent  which  is  not  paid, 
or  under  promise  of  deferred  payments  which 
are  not  made,  they  revert  to  the  owner.  If  they 
have  been  purchased  with  borrowed  credits  which 
are  not  repaid,  they  may  be  foreclosed,  sold,  and 
the  proceeds  paid  to  the  creditor.    They  may  or 


414.  THE  FLOW  OF  VALUE 

may  not  pass  into  the  possession  of  those  with 
the  capacity  to  utilize  them  for  remunerative 
return. 

If  a  bank  were  to  place  an  entry  to  the  credit 
of  a  depositor  not  based  upon  utilities  sold  by  him 
or  bought  by  him,  the  resources  of  the  bank  would 
be  liable  for  all  checks  drawn  against  that  entry 
in  case  the  depositor  were  unable  to  obtain  equiv- 
alent credit  wherewith  to  repay  that  advance  to 
him.  Such  an  advance  to  a  depositor  is  discoun- 
tenanced, but  it  is  sometimes  effected  by  the  dis- 
count of  what  is  termed  an  **  accommodation 
note."  The  bank  thus  lends  its  credit  to  the  de- 
positor. A  bank  may  be  prompted  to  discount 
an  accommodation  note  in  the  hope  to  help  to  tide 
a  depositor  in  its  debt  over  a  period  of  adversity 
and  thus  to  avoid  the  loss  of  that  which  he  had 
previously  placed  himself  under  obligation  to  re- 
pay. In  this  it  may  be  successful,  or  in  a  col- 
loquial phrase  it  may  be  "throwing  good  money 
after  bad." 

Banks,  in  common  with  other  business  organ- 
izations, desire  to  secure  profit.  Their  profit  in  a 
great  measure  is  derived  from  the  credits  that 
pass  to  them  as  interest  or  discount  paid  by  those 
to  whom  they  lend  credit.  Therefore,  when  a 
bank  has  credits  at  its  disposal  in  excess  of  those 
required  to  meet  probable  demand  upon  it  for  a 
period,  it  is  prone  to  seek  the  opportunity  to 
place  those  credits  in  the  way  of  utilization  in 


FUNCTIONS  OF  A  MODERN  BANK      415 

return  for  interest.  In  so  doing  it  may  render 
service  toward  increasing  the  production  of  util- 
ities for  which  there  is  compensatory  or  profitable 
demand,  or  it  may  serve  to  stimulate  overproduc- 
tion. The  greater  the  volume  of  deposits  which 
a  bank  so  may  utilize,  the  greater,  other  tilings 
equal,  will  be  its  profit.  Therefore,  a  bank  in  or- 
der to  enlarge  the  volume  of  its  deposits  may  offer 
to  pay  interest  to  its  depositors.  This  gives  a 
greater  stimulus  to  the  endeavor  to  keep  the  de- 
posits loaned  at  a  higher  rate  of  interest  in  order 
that  it  may  pay  the  agreed  interest  to  the  de- 
positors and  have  the  difference  as  profit. 

When  banks  have  large  accumulations  of  cred- 
its in  the  form  of  deposits,  the  greater  proportion 
of  which  will  likely  not  be  drawn  by  depositors 
in  the  near  future,  they  are  the  more  inclined  to 
make  loans  to  those  who  desire  to  buy  stocks 
and  bonds  than  when  there  are  not  such  accumu- 
lations of  deposits.  The  buyer  gives  his  promis- 
sory note  to  the  bank  for  that  part  of  the  payment 
he  does  not  make  from  credits  in  which  he  has 
property,  and  deposits  the  securities  bought  as 
collateral.  That  is,  he  pledges  them  for  the  pay- 
ment of  the  note,  and  he  may  at  the  discretion  of 
the  bank  deposit  additional  collateral.  The  prices 
obtainable  for  the  securities  so  purchased  may  so 
advance  that  he  may  sell  them  for  credits  that  en- 
able him  to  pay  the  loan  with  interest  and  yield 
profit.    If  the  prices  of  the  securities  fall,  the 


416  THE  FLOW  OF  VALUE 

bank  may  sell  them  when  the  decline  has  reached 
the  price  that  will  bring  no  more  credits  than 
requisite  to  pay  the  loan.  There  are  times  when 
the  credits  advanced  by  banks  on  such  promis- 
sory notes  are  in  greater  amounts  than  those  ad- 
vanced on  promissory  notes  given  by  manufac- 
turers and  merchants  to  facilitate  and  augment 
the  production  and  sale  of  utilities  for  which  they 
are  responsible. 

A  bank  is  a  factor  not  only  in  facilitating,  by 
the  discounting  of  promissory  notes  and  similar 
instruments,  the  continuity  of  buying  and  selling 
through  periods  of  time,  but  it  is  a  factor  in  fa- 
cilitating the  continuity  of  buying  and  selling  be- 
tween one  place  and  another.  The  adjustment  of 
payments  by  the  balancing  of  checks  against 
checks  drawn  at  various  places  over  wide  areas 
by  means  of  branch  banks,  correspondent  banks, 
and  clearing  houses,  contributes  to  this  end.  This 
adjustment  in  the  United  States  is  of  payments 
expressed  in  terms  of  the  dollar.  There  are 
many  banks,  especially  in  the  large  cities  and  at 
the  seaports,  which  facilitate  the  payment  of  bills 
of  exchange,  acceptances,  and  similar  instruments 
that  are  drawn  in  one  country  but  payable  in  an- 
other, and  that  may  not  be  expressed  in  terms  of 
the  unit  of  exchange  prevailing  in  the  country 
in  which  they  are  payable. 

Thus  utilities  that  are  sold  at  prices  expressed 


FUNCTIONS  OF  A  MODERN  BANK      417 

in  pounds  sterling,  francs,  marks,  pesetas,  florins, 
or  rubles  may  be  accepted  by  banks  of  the  United 
States  and  made  the  basis  of  credits  in  dollars; 
and,  vice  versa,  instruments  drawn  in  the  United 
States  in  terms  of  dollars  may  be  made  the  basis 
of  entry  in  the  banks  of  another  country  in  terms 
of  the  unit  of  exchange  there  prevailing.  This 
means  that  utilities  of  a  given  kind  may  have  a 
ratio  to  the  unit  of  exchange  that  prevails  in  one 
country,  and  also  a  ratio  to  the  unit  of  exchange 
that  prevails  in  another  country.  Indeed,  utili- 
ties of  the  same  kind  may  have  different  ratios  to 
the  same  unit  of  exchange  at  one  place  and  at 
another  place  in  the  same  country.  To  gain  an 
understanding  of  how  this  may  be,  it  is  desirable 
again  to  resort  to  outline  in  the  abstract. 

The  measure  of  force  required  to  effect  the  pro- 
duction of  a  given  volume  of  utilities  of  a  given 
kind  at  one  place  may  be  different  from  the  meas- 
ure required  in  its  production  at  another  place. 
Obviously,  the  measure  of  force  required  to  pro- 
duce a  given  volume  of  utilities  applied  near  the 
source  of  substance  would  be  less,  other  things 
equal,  than  that  required  in  their  production  at 
a  place  remote  from  the  source  of  substance,  for 
in  the  latter  case  the  force  applied  in  production 
would  include  the  force  applied  in  transportation. 
Likewise,  the  force  applied  at  mill  or  factory,  in 
the  transformation  of  substance  into  a  final  util- 
ity, has  to  be  supplemented  by  the  force  applied 


418  THE  FLOW  OF  VALUE 

in  its  transportation  to  the  community  where  it 
is  offered  for  sale,  and  that  applied  in  placing  it 
in  the  retail  store. 

In  our  hypothetical  development  of  the  indus- 
try and  commerce  of  the  United  States,  the  emer- 
gence out  of  self-sufficiency  was  indicated  as  of 
one  community  at  one  place.  Therefore,  the  meas- 
ures of  utilities  that  were  bought  and  sold  for 
the  dollar  were  determined  by  the  interrelations 
between  effort  applied  and  wants  met  at  that  place. 
If  we  had  supposed  that  emergence  to  have  been 
of  another  community  in  an  area  better  adapted 
to  the  production  of  cornmeal,  rice,  and  pork  than 
of  -flour,  potatoes,  and  mutton,  the  dollar  would 
have  arisen  from  the  production  and  sale  of  these 
commodities,  and  not  from  the  production  and 
sale  of  flour,  potatoes,  and  mutton.  In  the  course 
of  time,  as  the  further  specialization  of  effort  in 
this  community  led  to  the  accumulation  of  credits 
in  the  possession  of  many  of  its  members,  a  num- 
ber of  them  might  want  flour,  mutton,  and  pota- 
toes as  well  as  cornmeal,  rice,  and  pork.  Con- 
versely, in  the  course  of  time,  members  of  the  com- 
munity producing  flour,  mutton,  and  potatoes 
might  also  want  cornmeal,  rice,  and  pork.  Obvi- 
ously, the  prices  of  the  utilities  produced  by 
either  community  would  be  lower  at  the  place  of 
production  than  at  a  distant  market.  Because  of 
the  differences  in  the  productivity  of  effort,  wages 


FUNCTIONS  OF  A  MODERN  BANK      419 

might  be  higher  or  lower  at  one  place  than  at 
the  other. 

Prices  would,  as  always,  be  determined  by  vari- 
ous interrelations  between  effort  put  forth  and 
wants  met.  To  those  in  the  one  community  whose 
effort  brought  them  only  subsistence  wages,  flour, 
potatoes,  and  mutton  would  be  essential  utilities; 
to  such  in  the  other  would  be  cornmeal,  rice,  and 
pork.  Foodstuffs  of  any  kind  could  be  obtained 
in  greater  measure  in  relation  to  effort  put  forth 
at  markets  contiguous  to  farms,  gardens,  orchards, 
and  groves  than  at  those  farther  away.  It  would 
be  so  also  with  utilities  of  the  various  kinds  that 
are  designated  as  manufactured  articles,  as  the 
extension  of  specialization  and  the  utilization  of 
machinery  led  to  their  production. 

Thus  there  would  be  the  opportunity  for  trad- 
ers aware  of  the  lower  prices  for  which  utilities 
oould  be  bought  at  one  place,  and  the  higher 
prices  which  could  be  obtained  for  them  at  an- 
other, to  secure  profit  by  buying  in  one  place  and 
selling  in  the  other.  Extreme  examples  of  such 
contrasts  of  prices  are  of  those  paid  for  pearls 
to  the  divers  that  bring  them  up  from  the  Indian 
Ocean,  and  those  obtainable  in  a  metropolis  of 
the  western  world;  or  likewise  of  the  prices  paid 
for  elephant  tusks  in  the  interior  of  Mozambique 
and  those  obtainable  for  ivory.  The  profit  of  a 
trader,  of  course,  is  all  the  greater  if  he  can  ob- 


420  THE  FLOW  OF  VALUE 

tain  in  each  community  that  which  he  sells  for 
higher  prices  in  the  other.  An  extreme  example 
of  this  is  afforded  by  the  old-time  trading  to  the 
Indians  of  the  Northwest  of  glass  beads  and  whis- 
key for  furs  that  were  sold  at  great  profit  in  the 
shops  of  fashionable  thoroughfares. 

This  buying  at  one  place  for  lower  prices  than 
are  obtainable  at  another  finds  manifestation  in 
the  buying  and  selling  of  utilities  of  virtually 
every  kind.  There  may  be  variations  in  the 
prices  obtainable  for  stocks  and  bonds  in  the 
exchanges  of  New  York  and  those  of  London,  of 
which  traders  take  advantage  by  giving  orders 
to  buy  or  to  sell  that  are  transmitted  by  cable. 

As  the  facilities  for  transportation  are  ex- 
tended and  knowledge  of  prices  in  various  markets 
is  diffused,  the  difference  in  price  between  one 
place  and  another  tends  to  become  less,  and  the 
fluctuations  to  be  less  violent.  The  reason  for  this 
is  that  the  forces  of  supply  and  demand  operate 
over  a  wider  area.  In  a  vast  area,  such  as  that  of 
the  United  States,  throughout  which  one  language 
is  spoken,  the  habits  and  desires  of  the  population 
tend  to  a  greater  similarity,  and  the  equation 
of  prices  proceeds  with  greater  rapidity  than 
among  other  populations  where  intelligence  is  less 
widely  diffused  and  there  is  a  smaller  degree  of 
effectiveness  in  production,  buying,  and  selling. 
Thus  it  is  that,  in  the  United  States,  the  adjust- 
ment  of   transactions   is    effected   by   means   of 


FUNCTIONS  OF  A  MODERN  BANK      421 

checks,  drafts,  and  entries  on  the  books  of  banks 
from  one  end  of  the  country  to  the  other  with 
but  little  demand  for  gold  in  payment.  In  coun- 
tries that  have  not  attained  this  development,  coin, 
government  notes,  and  bank  notes  are  still  the 
media  of  exchange  in  vastly  the  greater  number 
of  transactions. 

The  acceptance  of  checks,  drafts,  bills  of  ex- 
change, and  acceptances  depends  in  part  upon  the 
facility  with  which  they  can  be  converted  into 
liquid  credits  that  can  be  drawn  against,  and  in 
greater  part  upon  the  belief  that  these  instruments 
are  certificates  that  utilities  have  been  sold  in 
return  for  which  other  utilities  are  due.  Drafts, 
bills  of  exchange,  and  acceptances  are  used  in  in- 
creasing degree  in  payment  for  utilities  bought 
in  one  country  and  sold  in  another.  Brokers  buy 
and  sell  such  instruments  drawn  in  one  country, 
and  facilitate  their  being  offset  against  similar 
instruments  drawn  in  another.  When  a  balance 
is  due  from  one  country  to  another  it  may  be  in- 
dicated, especially  in  the  case  of  the  more  highly 
civilized  nations,  by  credits  on  the  books  of  banks. 
Through  a  bank  that  has  branches  or  correspond- 
ents in  various  countries,  payments  in  large 
amounts  may  be  thus  effected  between  the  buy- 
ers and  sellers  of  these  different  countries.  In 
decreasing  degree  is  there  the  necessity  for  the 
shipment  of  gold  from  one  country  to  another. 
As  there  is  widening  belief  in  the  '* soundness" 


422  THE  FLOW  OF  VALUE 

of  drafts,  bills  of  exchange,  and  acceptances,  the 
necessity  for  the  use  of  gold  will  the  further  di- 
minish. It  has  even  been  suggested  that,  if  all 
of  the  gold  in  the  world  that  presumably  serves 
as  a  basis  for  ** money,"  were  impounded  on  an 
ocean  island  that  was  not  within  the  jurisdiction 
of  any  particular  nation  but  was  guarded  through 
a  concert  of  the  nations,  payments  between  the 
various  countries  might  be  effected  by  transfers 
of  debits  and  credits,  just  as  adjustment  between 
the  banks  of  a  large  city  is  effected  by  transfers 
of  debits  and  credits  on  the  books  of  the  clearing 
house,  without  transfer  of  the  stored  currency 
from  its  vaults.  The  fact  that  such  a  suggestion 
has  been  made  is  indication  of  the  growing,  though 
in  the  minds  of  many  a  subconscious,  recognition 
that  it  is  property  in  utilities  and  not  gold  that 
is  the  basis  of  money.  Until  there  is  universal 
belief  in  the  integrity  of  instruments  of  exchange, 
there  will,  however,  be  a  greater  or  less  need  for 
gold,  especially  in  the  settlement  of  international 
balances.  In  any  event,  there  will  be  a  continuing 
need  for  such  media  as  serve  the  purpose  of  coin, 
government  notes,  and  bank  notes  in  adjusting 
small  and  retail  transactions. 

The  exposition  contained  in  this  and  the  pre- 
ceding chapter  makes  clear  the  significance  of  the 
market  quotations  on  the  financial  page  of  a  daily 
newspaper.    The  wholesale  prices  given  for  the 


FUNCTIONS  OF  A  MODERN  BANK   423 

great  staple  utilities — wheat,  barley,  oats,  coffee, 
cotton,  copper — indicate  the  concurrence  of  buy- 
ers and  sellers  as  to  the  prices  at  which  these 
substances  may  be  purchased  for  transformation 
into  final  utilities  from  which  profit  can  be  ob- 
tained. In  journals  devoted  to  the  interests  of 
respective  lines  of  production  are  given  the  market 
quotations  for  substances  of  the  various  kinds 
utilized  in  the  respective  lines  of  production. 

The  quotations  of  prices  at  which  the  stocks  and 
bonds  of  various  business  or  governmental  organ- 
izations have  been  bought  and  sold  indicate  the 
concurrence  of  buyers  and  sellers  as  to  the  prices 
which  buyers  believe  will  advance,  or  upon  which 
they  believe  they  will  obtain  interest  or  dividends. 
The  quotations  of  prices  for  ** money"  indicate 
the  concurrence  of  buyers  and  sellers  as  to  the 
rates  of  interest  for  the  utilization  of  credits,  in 
return  for  which  those  who  pledge  the  payment 
of  interest  believe  they  can  obtain  profit.  The 
quotations  of  rates  of  exchange  on  money  of  vari- 
ous foreign  nations  indicate  the  premium  that  will 
have  to  be  paid,  or  the  discount  which  may  be 
availed  of,  in  adjusting  payments  on  international 
transactions.  The  diffusion  of  all  such  quotations 
tends  to  the  equating  of  supply  and  demand  over 
widening  areas. 


XXII 

THE  TBEND  OF  THE  MONETARY  AND  BANKING  SYSTEM 

If  the  unit  of  exchange  were  considered  solely 
to  be  the  respective  measures  of  utilities  of  differ- 
ent kinds  that  are  exchangeable — that  is,  the  meas- 
ure of  a  utility  of  one  kind  that  is  exchangeable 
for  a  measure  of  a  utility  of  another  kind,  as  de- 
termined by  the  interrelations  between  the  supply 
of  and  the  demand  for  utilities — prices  for  man- 
hours,  for  want-units,  for  sources  of  substance, 
for  substance,  for  intermediate  utilities,  and  for 
instruments  of  production  would  be  determined 
solely  by  such  interrelations.  Prices  for  respec- 
tive utilities  would  rise,  or  prices  for  respective 
utilities  would  fall,  as  there  were  variations  in 
such  interrelations.  The  flow  of  effort  into  the 
production  of  utilities  of  a  given  kind,  or  out  of 
the  production  of  utilities  of  a  given  kind,  would 
be  consequent  upon  a  rise  in  prices  or  a  fall  in 
prices  so  determined. 

As  has  been  indicated  in  preceding  chapters, 
the  course  of  industry  and  commerce  is  toward 
such  determination  of  prices.  Its  progress  to  that 
end  has  been  retarded  and  is  still  retarded  by  the 
fact  that  the  unit  of  exchange  has  been  considered 

424 


MONETARY  AND  BANKING  SYSTEM     426 

to  be  a  given  quantity  of  a  given  metal,  usually 
in  the  form  of  a  coin.  It  is  still  almost  universally 
held  that  a  given  quantity  of  metal,  usually  in  the 
form  of  a  coin,  is  the  unit  of  exchange,  no  matter 
what  may  be  the  relation  of  the  supply  of  coins  to 
the  interrelations  between  the  supply  of  and  the 
demand  for  utilities. 

When  coins  were  the  sole  intermediary  of  ex- 
change, the  measures  of  utilities  that  then  had 
the  ratio  of  the  unit  of  exchange  were  determined 
not  only  by  variations  in  the  interrelations  be- 
tween the  supply  of  and  the  demand  for  these 
utilities,  but  also  by  the  relation  of  the  supply 
of  coins  to  the  volume  of  utilities  that  entered  into 
exchange.  When  the  supply  of  coins  was  large 
in  relation  to  the  transactions  it  was  desired  to 
effect,  prices  expressed  in  dollars — if  for  example, 
the  dollar  were  the  unit  by  which  the  coin  was 
designated — tended  to  become  higher  because 
more  dollars  were  obtained  for  a  given  measure 
of  a  utility,  and  more  dollars  were  paid  for  a 
given  measure  of  a  utility.  Conversely,  when  the 
supply  of  coins — for  example,  designated  as  dol- 
lars— was  small  in  relation  to  the  transactions  it 
was  desired  to  effect,  prices  expressed  in  dollars 
would  tend  to  become  lower,  because  fewer  of  the 
coins  designated  as  dollars  were  obtainable  for 
a  given  measure  of  a  utility,  and  fewer  of  the  coins 
designated  as  dollars  were  paid  for  a  given  meas- 
ure of  a  utility.    Thus  arose  the  theory  that  vari- 


426  THE  FLOW  OF  VALUE 

ations  in  prices  are  due  to  variations  in  the  supply 
of  money  in  relation  to  the  volume  of  transactions 
it  is  desired  to  effect.  Although  this  is  a  theory 
of  prices  it  is  usually  designated  as  the  quantity 
theory  of  money. 

A  vast  influx  of  metals,  as  new  deposits  were 
discovered  and  mined,  would  lead  to  a  vast  in- 
crease in  the  coinage,  with  a  resulting  rise  in 
prices  as  expressed  in  terms  of  coin.  Then  in  the 
course  of  time  as  the  volume  of  transactions  in- 
creased in  greater  proportion  than  the  increase  in 
the  coinage,  prices  as  expressed  in  terms  of  the 
coin  would  fall.  Such  an  increase  or  decrease 
in  prices  would  not  effect  all  utilities  simultane- 
ously, but  would  be  more  or  less  gradually  diffused 
in  its  application  to  utilities  of  the  various  kinds. 
Those  who  watched  the  rise  and  fall  in  the  sup- 
ply of  money  might  secure  gain  because  of  the 
mutations  in  its  supply.  Those  not  informed  as 
to  its  rise  and  fall  might  be  caught  unawares  by 
rising  or  declining  prices.  Those  who  were  under 
contracts  obligating  them  to  make  certain  pay- 
ments in  terms  of  the  unit  of  exchange  through- 
out a  period  of  time  would  be  obliged,  because  of 
a  decrease  in  the  supply  of  coin,  to  sell  more  of 
utilities  in  order  to  make  these  payments.  Or  if 
there  were  an  increase  in  the  supply  of  coin  they 
would  be  enabled  to  make  the  payments  through 
selling  a  smaller  volume  of  utilities.  Conversely, 
those  under  contracts  entitling  them  to  receive 


MONETARY  AND  BANKING  SYSTEM     427 

certain  payments,  expressed  in  terms  of  the  unit 
of  exchange,  throughout  a  period  of  time,  would 
suffer  loss,  in  case  there  was  an  increase  in  the 
supply  of  coin,  by  having  to  pay  more  of  tlie  coins 
they  received  for  the  utilities  they  bought.  Or 
they  would  gain,  in  case  there  was  a  decrease  in 
the  supply  of  coin,  by  being  enabled  to  buy  greater 
measures  of  utilities  with  the  payments  they  re- 
ceived. 

It  was  so  also  during  the  period  when  govern- 
ment notes  and  bank  notes  supplemented  the  use 
of  coins,  and  currency  composed  of  coins,  govern- 
ment notes,  and  bank  notes  was  the  sole  interme- 
diary of  exchange.  Neither  governments  nor 
banks  adjusted  their  issues  of  circulating  notes 
to  the  volume  of  transactions  it  was  desired  to 
effect.  Governments  in  adversity  were  prone  to 
issue  notes  for  which  they  sought  to  obtain  cir- 
culation to  the  end  that  they  might  meet  obliga- 
tions in  amounts  greater  than  could  be  paid  from 
taxation.  Banks  were  prone  to  endeavor  to  se- 
cure a  fleeting  advantage  by  the  issue  of  circu- 
lating notes  in  amounts  greater  than  could  be 
absorbed  without  a  rise  in  prices.  The  effect  of 
such  expansion  or  contraction  in  the  volume  of 
currency  was  the  same  as  that  caused  during  the 
preceding  period  by  similarly  undue  expansion 
or  contraction  in  the  volume  of  coin.  Such  ex- 
pansion or  contraction  might  have  an  effect  upon 
prices  that  would  continue  through  long  periods. 


428  THE  FLOW  OF  VALUE 

The  greater  the  proportion  of  buying  and  sell- 
ing that  is  effected  by  means  of  checks,  drafts, 
bills  of  exchange,  credit  entries  and  debit  en- 
tries on  the  books  of  banks,  the  nearer  is  the  ap- 
proach to  the  conditions  under  which  the  value 
of  the  dollar  is  determined  by  the  interrelations 
between  the  supply  of  and  the  demand  for  utili- 
ties. Thus  the  less  is  the  degree  in  which  the 
quantity  of  money  theory  of  prices  applies. 
Such  an  instrument  is  not  issued — that  is,  is 
not  legitimately  issued — except  in  payment  for 
utilities  bought.  When  presented  at  the  bank  on 
which  it  is  drawn  and  entered  to  the  debit  of  the 
drawer,  his  credit  is  diminished  by  the  amount 
of  the  check,  and  the  check  is  cancelled.  That  is, 
such  an  instrument  can  be  drawn  only  against 
credits  obtained  from  the  sale  of  utilities,  and 
its  circulation  ceases  when  the  transaction  is  con- 
summated. If  payments  were  so  effected  in  all 
transactions  there  could  not  be  a  circulating  me- 
dium exceeding  in  volume  the  transactions  ef- 
fected, nor  of  face  value  exceeding  the  actual  value 
of  the  transactions.  Banks  could  not  discount 
promissory  notes  except  from  credits  obtained 
from  the  sale  of  utilities.  Every  check,  draft,  bill 
of  exchange,  or  acceptance  would  be  supported 
by  utilities,  or  by  credits  derived  from  the  sale 
of  utilities.  Every  credit  entry  on  the  books 
of  a  bank  would  be  a  symbol  of  utilities  sold,  in 
return  for  which  other  utilities  could  be  obtained. 


MONETARY  AND  BANKING  SYSTEM     429 

Then  the  so-called  quantity  theory  of  money, 
the  theory  that  prices  depend  upon  the  supply  of 
money  in  relation  to  the  volume  of  transactions, 
in  the  sense  that  money  is  something  separate 
and  apart  from  utilities  bought  and  utilities  sold, 
would  have  no  foundation. 

Because,  however,  of  the  perpetuation  of  the 
belief  that  specie — that  is,  coin  or  bullion — under- 
lies every  exchange,  it  is  held  that  such  an  inter- 
mediary of  exchange  as  a  check,  draft,  bill  of 
exchange,  or  acceptance  must  be  redeemable  in 
specie  if  specie  is  demanded  for  it.  Therefore 
dollars,  as  expressed  even  in  entries  to  credit  and 
to  debit  on  the  books  of  banks,  are  not  always 
determined  absolutely  by  interrelations  between 
the  supply  of  and  the  demand  for  utilities  that  are 
bought  and  sold.  Because  of  the  perpetuation  of 
the  belief  that  specie  underlies  every  exchange, 
it  is  decreed  by  law  that  the  deposits  of  a  bank — 
that  is,  all  entries  to  the  credit  of  its  depositors — 
must  not  exceed  a  certain  ratio  to  the  reserve  of 
specie  which  the  bank  must  hold  in  order  that  it 
may  have  in  its  possession  a  suflBcient  proportion 
of  specie  to  enable  it  to  make,  in  specie,  payments 
for  which  specie  is  demanded.  Therefore  if  the 
deposits  of  the  banks  have  reached  the  limit  of 
the  ratio  they  must  bear  to  the  specie  reserve, 
and  they  are  unable  to  increase  that  reserve,  there 
can  not  be  the  entry  of  additional  credits  to  de- 
positors.   Thus  the  discount  of  promissory  notes 


480  THE  FLOW  OF  VALUE 

will  have  to  cease.  This  will  be  the  case,  whether 
or  not  there  is  demand  for  such  additional  dis- 
counts to  facilitate  transactions  in  accordance  with 
the  supply  of  and  the  demand  for  utilities.  In 
such  a  case  it  is  said  that  "money  is  tight."  The 
banks  increase  their  rate  of  interest.  This  tends 
to  cause  a  rise  in  pric'es,  and  thus  to  restrict  the 
volume  of  transactions.  On  the  other  hand,  if  the 
deposits  in  the  banks  are  of  an  amount  consider- 
ably below  the  limit  determined  by  the  ratio  of 
deposits  to  reserve,  ''money  is  easy."  As  a  con- 
sequence the  rate  of  interest  falls,  and  thus  there 
is  stimulus  to  production,  buying,  and  selling  be- 
cause of  the  greater  readiness  with  which  prom- 
issory notes  can  be  discounted  and  credits  ob- 
tained. Such  retardation  and  such  stimulus  may 
or  may  not  be  wholesome;  it  may  lead  to  under- 
production or  to  overproduction.  Such  expansion 
or  contraction  of  bank  credit  is  analogous  to  the 
expansion  or  contraction  in  the  supply  of  coins 
during  the  period  when  coins  were  the  sole  in- 
termediary of  exchange,  and  to  the  expansion  or 
contraction  in  the  volume  of  bank  notes  and  gov- 
ernment notes  during  the  period  when  currency 
was  the  sole  intermediary  of  exchange. 

That  the  requirement  of  a  ratio  of  reserve  to 
bank  deposits  is  artificial  is  indicated  by  the  fact 
that  there  is  no  rule  by  which  the  requisite  ratio 
can  be  determined,  and  that  there  is  wide  differ- 
ence of  opinion  as  to  what  that  ratio  ought  to  be. 


MONETARY  AND  BANKING  SYSTEM     431 

It  was  in  large  measure  to  avoid  undue  and 
spasmodic  contraction  and  expansion  in  the  means 
by  which  payment  is  effected,  and  thus  to  ensure 
that  the  volume  of  bank  deposits  might  expand 
and  contract  more  nearly  in  accordance  with  ex- 
pansion and  contraction  in  the  demand  for  such 
credits  as  were  determined  by  the  supply  of 
and  the  demand  for  utilities,  that  the  Federal  Re- 
serve Banking  System  was  inaugurated.  It  pro- 
vides that  banks  which  are  members  of  the  sys- 
tem may  have  notes  they  have  discounted,  which 
meet  certain  requirements  as  to  the  time  of  ma- 
turity and  other  stipulations,  rediscounted  by  a 
federal  reserve  bank.  There  is  still  the  prescrip- 
tion of  a  ratio  of  deposits  to  specie  reserve,  but 
as  the  specie  reserve  is  concentrated  with  the 
federal  reserve  banks  there  is  an  increase  in  the 
ratio  of  the  permissible  total  of  deposits.  It 
was  the  intent  that  the  credits  on  the  books  of  the 
federal  reserve  banks  have  their  actual  basis  in 
utilities  in  the  actual  processes  of  commerce. 

It  was  also  the  intent  that  the  government  have 
an  agency  that  would  enable  it  to  finance  its  needs 
when  under  the  severe  stress  of  an  extraordinary 
emergency.  Such  an  emergency  arose  during  the 
War  of  1914.  The  government  incurred  indebted- 
ness which  it  was  obliged  to  liquidate  through  bor- 
rowing upon  certificates  issued  by  the  United 
States  Treasury  in  advance  of  its  receipt  of  reve- 
nue  from  taxes   and   from   the   sale    of  bonds. 


482  THE  FLOW  OF  VALUE 

Credits  received  by  the  government  from  such 
loan  anticipation  and  tax  anticipation  certificates 
were  deposited  in  the  banks.  The  banks  more- 
over were  permitted  to  rediscount  with  the  Fed- 
eral Reserve  Bank  notes  which  were  secured  by 
the  *'war  paper"  of  the  government,  that  is  by 
obligations  of  the  government  based  on  credits  to 
be  obtained  from  taxes,  and  not  upon  utilities  that 
had  been  actually  bought  and  sold  in  the  course 
of  commerce.  Therefore  there  was  a  vast  in- 
crease in  the  deposits  of  the  banks,  and  the  vol- 
ume of  deposits  so  increased  enabled  them  to  be 
liberal  toward  their  commercial  customers.  Thus 
these  deposits  were  diffused  throughout  com- 
merce. 

Taxes  and  subscriptions  to  government  bonds 
are  paid  from  credits  derived  from  the  sale  of 
utilities  by  the  citizens.  The  loan  anticipation 
and  tax  anticipation  certificates  were  virtually  a 
forced  loan  by  the  government.  It  is  the  con- 
sensus of  opinion  that  this  increase  in  the  vol- 
ume of  credits,  not  due  to  the  sale  of  utilities, 
has  had  an  effect  upon  prices  in  general  anal- 
ogous to  that  due  to  a  sudden  and  large  in- 
crease in  the  supply  of  coins  during  the  period 
when  coins  were  the  sole  intermediary  of  ex- 
change, and  to  a  sudden  and  large  increase  in 
the  issue  of  government  notes  or  of  bank  notes 
during  the  period  when  currency  was  the  sole 
intermediary    of    exchange.    Therefore    the    in- 


MONETARY  AND  BANKING  SYSTEM     433 

crease  in  prices  during  the  war  and  subsequent  to 
the  war  Las  been  due  not  only  to  variations  in  the 
interrelations  between  the  supply  of  and  the  de- 
mand for  utilities  such  as  has  been  indicated  on 
pages  224-230,  but  also  to  an  increase  in  the  vol- 
ume of  bank  credits  not  derived  from  actual 
transactions. 

Changes  in  the  value  of  the  dollar  due  to  a 
deficient  or  redundant  supply  of  coins,  or  of  cur- 
rency, or  of  bank  credits  are  not  unlike  what  would 
happen  if  the  points  scored  during  a  game  were, 
at  different  phases  of  its  progress,  differently 
enumerated.  If,  for  example,  certain  players  of 
the  prevailing  bridge  whist,  who  kept  a  continu- 
ous score,  were  now  and  then  to  change  clubs  from 
6  to  7,  diamonds  from  7  to  9,  hearts  from  8  to  10, 
spades  from  9  to  12,  and  to  make  analogous 
changes  in  the  count  of  the  honors,  and  varying 
changes  were  made  from  one  evening  to  another, 
the  continuous  score  would  be  vitiated.  If  vari- 
ations were  made  in  the  counts  by  the  same  play- 
ers during  the  same  evening,  confusion  would  be 
worse  confounded.  Attention  would  be  diverted 
from  the  efficient  playing  of  the  game  to  the  grab- 
bing for  points,  just  as  the  pursuit  of  what  is  gen- 
erally considered  to  be  money  tends  to  divert  ef- 
fort from  efficient  application  in  production  to  the 
grabbing  for  dollars. 

Experience  of  the  past  indicates  that  the  mone- 
tary system  toward  which  we  are  tending  will  pro- 


434  THE  FLOW  OF  VALUE 

vide  for  a  volume  of  currency  that  will  be  sufficient 
for  the  demand,  that  will  be  neither  substantially 
less  nor  substantially  greater  than  the  volume  re- 
quired for  service  in  the  small  and  retail  trans- 
actions which  are  virtually  all  in  which  it  is  now 
used.  The  present  minor  coins  of  copper,  nickel, 
and  silver  have  little  relation  to  the  value  of  gold. 
They  are  ''token  money"  and  circulate  largely 
because  of  the  universality  of  their  acceptance. 
When,  for  example,  there  are  more  dimes  than  are 
needed,  the  surplus  remains  in  the  mints  and  in 
the  banks  until  it  is  absorbed ;  when  there  is  a  de- 
ficiency, an  additional  supply  is  coined.  Practice 
has  demonstrated  that  the  adjustment  of  bank 
notes  to  the  actual  needs  of  actual  business  could 
be  attained  if  a  bank  were  to  send  a  redundant 
supply  of  such  notes  received  by  it  to  the  banks 
of  issue  where  they  could  be  cancelled.  This  was 
the  practice  of  the  Suffolk  banking  system  in  New 
England,  and  it  is  now  the  practice  of  the  banks 
of  Canada.  This  is  the  practice  with  the  five- 
pound  notes  of  the  Bank  of  England.  Such  a  note 
is  drawn  from  a  bank  by  one  who  desires  to  pay 
currency  for  a  purchase.  It  may  pass  from  one 
to  another  in  a  succession  of  transactions,  but 
when  one  who  receives  it  deposits  it  in  a  bank,  it 
is  returned  to  the  Bank  of  England  where  it  is 
cancelled. 

The  evolution  of  banks  and  banking  indicates 
that  we  are  tending  toward  a  commercial  banking 


MONETARY  AND  BANKING  SYSTEM     435 

system  under  which  instruments  of  exchange  such 
as  checks,  drafts,  bills  of  exchange,  and  accept- 
ances will  be  issued  only  in  payment  for  actual 
transactions,  and  will  be  cancelled  when  presented 
to  the  bank  upon  which  they  are  drawn.  Under 
such  a  system  banks  would  not  discount  promis- 
sory notes  other  than  those  given  in  payment  for 
utilities  in  the  actual  processes  of  buying  and  sell- 
ing, which  of  course  would  include  stocks  and 
bonds.  Thus  expansion  or  contraction  in  the 
volume  of  bank  credits  would  depend  upon  ex- 
pansion or  contraction  in  the  volume  of  business. 
The  causes  for  a  rise  in  the  price  of  any  utility 
could  the  more  readily  be  detected,  and  a  rise 
beyond  that  warranted  by  an  increased  demand 
in  relation  to  the  supply  would  the  more  readily 
be  checked.  Similarly,  the  reasons  for  a  fall  in 
price  could  the  more  readily  be  detected,  and  thus 
judgment  be  formed  as  to  whether  it  was  due  to  a 
decreasing  demand  or  to  overproduction. 

Our  present  commercial  banking  system  has 
made  great  progress  toward  such  perfection.  The 
end  can  not  be  fully  attained  until  there  is  a 
clear  understanding  of  the  actual  significance  of 
production,  buying,  and  selling,  and  a  profound 
change  in  the  psychological  attitude  toward  the 
metals  as  the  basis  of  the  unit  of  exchange. 

An  inestimable  benefit  that  would  flow  from  the 
attainment  of  such  an  ideal  would  be  in  the  per- 
ception and  diffusion  among  the  whole  people  of 


486  THE  FLOW  OF  VALUE 

belief  in  the  fact  that  material  welfare  does  not 
depend  upon  the  acquisition  of  money  in  the  sense 
of  endeavoring  to  obtain  as  much  money  as  possi- 
ble and  to  work  as  little  as  possible,  but  that  mate- 
rial welfare  depends  upon  the  greatest  volume  of 
production  in  relation  to  the  effort  applied  with 
due  regard  to  the  relativity  of  production. 


xxin 

SOUND   MINDS   IN    SOUND  BODIES 

If  we  accept  the  dictum  of  the  philosopher  that 
the  great  desideratum  of  human  kind  is  the  at- 
tainment of  sound  minds  in  sound  bodies,  it  fol- 
lows that  there  ought  not  to  be  the  propagation 
and  promotion  of  the  existence  of  the  greatest 
number  of  persons,  but  that  human  effort  ought 
to  be  devoted  toward  the  propagation  and  the  pro- 
motion of  the  existence  of  the  greatest  number 
with  sound  minds  in  sound  bodies.  As  the  ulti- 
mate purpose  of  all  production  of  utilities,  of  all 
buying  and  selling  of  utilities,  is  to  minister  to 
human  wants,  it  is  in  order  to  discuss  that  minis- 
tration to  human  wants  which  conduces  to  sound 
minds  in  sound  bodies,  and  that  which  does  not 
so  conduce.  It  is  in  order  to  discuss  to  what 
extent  the  production,  buying,  and  selling  of  util- 
ities should  be  left  to  individual  initiative,  and  to 
what  extent  it  should  be  placed  under  concerted 
regulation  to  promote  this  end.  If  it  is  found  de- 
sirable that  there  be  a  degree  of  concerted  regula- 
tion, it  is  in  order  to  discuss  whether  it  should  be 
exerted  by  the  government,  or  by  those  engaged 
in  production,  buying,  and  selling,  or  in  respective 

437 


488  THE  FLOW  OF  VALUE 

proportions  through  governmental  agencies  and 
through  those  engaged  in  business.  In  either 
event,  the  will  of  certain  portions  of  the  popula- 
tion will  b'e  imposed  upon  the  will  of  certain  other 
portions  of  the  population.  This  may  be  sub- 
mitted to  by  the  people  as  guidance  on  the  part  of 
those  competent  to  guide,  or  as  imposition  of  the 
nature  of  tyranny. 

A  beneficial  utility  promotes  the  attainment  of 
the  sound  mind  in  the  sound  body.  A  deleterious 
utility  impairs  the  mind  and  the  body.  A  utility 
that  is  beneficial  at  one  time  may  be  deleterious 
at  another,  as,  for  example,  food  that  is  palatable 
for  dinner  may  derange  digestion  if  taken  at 
breakfast.  Or  utilities  that  are  beneficial  when 
used  in  moderation  may  be  deleterious  in  excess. 
Even  poison  and  opiates  are  not  always  deleteri- 
ous. Their  buying  and  selling  is  regulated,  not 
prohibited.  It  is  generally  admitted  that  alcohol 
as  a  beverage  is  virtually  always  deleterious,  but 
its  use  in  the  arts  is  extended  and  manifold.  Cus- 
tom, example,  the  diffusion  of  intelligence,  all 
have  part  in  determining  the  kinds  of  final  utili- 
,ties  that  are  produced,  and  the  proportions  in 
which  they  are  consumed.  When  there  is  an  over- 
whelming preponderance  of  opinion  in  favor  of 
the  prohibition  or  regulation  of  the  use  of  utili- 
ties of  a  given  kind,  it  tends  to  find  expression 
in  legal  enactment,  the  effect  of  which  is  deter- 
mined through  time. 


SOUND  MINDS  IN  SOUND  BODIES      439 

There  are  many  who  believe  that  the  govern- 
ment ought  to  extend  its  activities  into  the  pro- 
duction and  selling  of  many  utilities.  This,  of 
course,  would  involve  the  buying  by  the  govern- 
ment of  the  substances,  the  payment  of  the  wages, 
and  the  provision  of  the  instruments  requisite  to 
that  production  and  sale.  It  would  either  have  to 
exclude  other  business  organizations  from  such 
production  and  selling,  or  compete  with  them,  or 
decree  the  prices  at  which  such  utilities  should  be 
sold.  If  the  government  were  not  successful  in 
keeping  its  costs  of  production  within  the  aggre- 
gate of  credits  obtained  from  sales,  it  would  have 
to  make  up  the  deficit  by  taxation.  The  experi- 
ence of  the  past  has  been  that  whenever  a  govern- 
ment has  engaged  in  the  production  of  utilities, 
it  has  seldom,  if  ever,  sought  the  production  of 
the  greatest  volume  in  relation  to  the  number  of 
persons  engaged,  but  that  a  political  party  in 
power  has  virtually  always  yielded  to  the  pres- 
sure to  give  employment  to  the  greatest  possible 
number  of  its  adherents.  This  alone  would  seem 
sufficient  to  demonstrate  the  principle  that  a  po- 
litical entity,  having  the  power  of  taxation,  ought 
not  to  engage  in  the  production  of  utilities  for 
sale.  This  includes  the  converse,  that  an  organ- 
ization engaged  in  the  production  of  utilities  for 
sale  ought  not  to  have  the  power  of  taxation. 

When  a  business  organization  continuously  in- 
curs loss,  it  is  forced  out  of  business ;  the  annihi- 


440  THE  FLOW  OF  VALUE 

lation  of  credits  is  concluded  by  foreclosure. 
When  a  government  continuously  incurs  loss,  there 
is  no  foreclosure.  The  loss  is  a  continual  bur- 
den upon  the  whole  population.  When  a  business 
organization  is  suspected  of  extravagance,  mis- 
management, or  malpractice  of  any  kind,  it  can 
be  brought  to  account  by  process  of  law  or  other- 
wise, its  aifairs  and  its  procedure  subjected  to 
searching  scrutiny.  When  a  government  is  under 
such  suspicion,  investigation  is  only  slowly  inau- 
gurated. It  is  often  difficult,  if  not  impossible,  to 
make  the  investigation  thorough,  because  a  po- 
litical party  in  power  can  not  be  investigated  ex- 
cept by  its  own  consent,  and,  in  order  to  hide  its 
delinquencies,  is  prone  to  resort  to  subterfuge 
that  baffles  penetration.  Moreover,  no  citizen  of 
the  United  States  can  institute  litigation  against 
the  Federal  Government  except  through  the  Court 
of  Claims,  and  its  decisions  are  not  effective  with- 
out the  approval  of  the  Congress. 

There  are  those  who  believe  that  the  govern- 
ment ought  to  regulate  the  price  of  many  utili- 
ties, even  though  they  be  produced  and  sold  by 
business  organizations.  The  prescription  by  the 
government  of  the  price  of  any  given  utility  would 
have  an  effect  upon  the  volume  in  which  that 
utility  would  be  produced  and  sold,  therefore  a 
certain  effect  upon  the  production  and  sale  of 
other  utilities,  and  thus  a  certain  effect  upon  the 
prices  of  other  utilities.    If  the  government,  from 


SOUND  MINDS  IN  SOUND  BODIES      441 

time  to  time,  were  to  fix  a  price  that  would  tend  to 
adjust  the  supply  of  a  given  utility  to  the  demand 
for  that  utility,  it  would  be  doing  no  more  than  is 
accomplished  through  buying  and  selling  by  busi- 
ness organizations.  If  it  were  to  fix  a  price  lower 
than  that  which  would  encourage  production,  the 
supply  would  be  limited  to  the  volume  produced 
by  those  who  could  obtain  profit  at  that  price, 
with  the  result  that  many  who  might  be  willing 
to  pay  a  higher  price  would  be  deprived.  If  the 
government  were  to  fix  a  price  higher  than  that 
which  would  be  determined  by  buying  and  selling 
in  accordance  with  supply  and  demand,  it  would 
be  compelling  consumers  to  pay  more  than  they 
otherwise  would.  The  government  would  be  de- 
termining the  proportion  of  an  individual's  credit 
which  he  must  expend  for  utilities  at  a  given  time 
if  he  purchased  them  in  the  same  volume  as  be- 
fore. Because  of  the  higher  price  he  might  pur- 
chase them  in  smaller  volume,  but  he  would  not 
purchase  them  in  greater  volume  than  he  might 
himself  determine,  unless  the  government  com- 
pelled him  to  do  so. 

If  the  government  were  to  attempt  to  fix  a  price 
that  would  limit  the  profit  of  producers,  it  would 
drive  out  of  production  those  who  could  not  ob- 
tain profit  at  the  prescribed  price.  Or  the  price 
might  be  such  that  eflScient  producers  might  ob- 
tain a  higher  profit  than  otherwise.  If  the  gov- 
ernment were  to  take  by  taxation  the  profit  in 


442  THE  FLOW  OF  VALUE 

excess  of  that  prescribed,  there  would  be  no  en- 
couragement to  increased  efficiency.  There  would 
be  produced  no  more  than  that  volume  of  utilities 
which  producers  could  sell  at  the  prescribed  profit, 
because  there  would  be  no  inducement  for  an  in- 
crease of  that  volume. 

If  the  government  were  to  attempt  to  determine 
both  the  price  and  the  profit,  it  also  would  have  to 
determine  the  costs  of  production.  Therefore,  it 
would  have  to  prescribe  the  rates  of  wages  and  the 
prices  for  substance,  and  this  would  involve  pre- 
scription of  the  wages  paid  for  the  production  of 
substance.  If  the  government  undertook  to  limit 
the  profit  obtained  in  the  production  and  sale  of 
any  given  utility,  it  could  not,  without  extreme 
exercise  of  authority,  compel  the  continuance  in 
its  production  of  those  who  could  obtain  higher 
profit  in  other  production.  If  it  were  to  prescribe 
the  wages  to  be  paid  in  any  given  line  of  pro- 
duction, it  could  not,  without  an  extreme  exercise 
of  authority,  compel  wage-earners,  who  could  ob- 
tain higher  wages  in  other  production,  to  work 
for  those  wages.  If  it  decreed  higher  wages  than 
could  be  obtained  in  other  production,  wage-earn- 
ers would  flow  into  that  production.  Thus  the 
proportion  of  effort  devoted  to  other  production 
might  be  impaired,  with  the  result  that  the  prices 
of  other  utilities  would  advance.  Moreover,  if 
the  government  were  to  undertake  to  prescribe 
wages,  it  would  either  have  to  adopt  arbitrary 


SOUND  MINDS  IN  SOUND  BODIES      443 

standards  of  wages  regardless  of  the  efficiency  of 
the  wage-earners,  or  else  it  would  have  to  make 
discrimination  between  wage-workers  of  differ- 
ent degrees  of  efficiency,  and  this  it  could  not  do 
without  immediate  oversight  of  the  productive 
processes. 

At  this  time,  when  human  effort  is  interwoven 
in  the  production  of  all  utilities,  it  would  inevi- 
tably follow  that,  if  the  government  were  to  at- 
tempt to  prescribe  price  and  profit  in  any  one  line 
of  production,  the  tendency  would  be  toward  its 
prescribing  price  and  profit  in  all  lines  of  produc- 
tion. This  would  result  in  determining  the  pro- 
portions in  which  effort  would  be  applied  in  the 
various  channels  of  production,  and  this  would  be 
impossible  without  determination  of  the  propor- 
tions in  which  utilities  of  the  various  kinds  would 
be  used  and  consumed.  The  government  would 
be  attempting  to  do  that  which  otherwise  is  ef- 
fected by  interrelations  between  supply  and  de- 
mand; by  the  interworking  of  human  effort  in 
producing  those  things  which  the  producers  be- 
lieve will  meet  the  wants  of  the  people,  and  the 
purchase  by  the  people  of  the  things  which  meet 
their  wants. 

In  case  of  war  the  situation  is  entirely  different. 
It  is  then  not  so  much  a  matter  of  promoting  the 
augmentation  of  debits  and  credits,  which  means 
material  prosperity,  as  it  is  a  matter  of  preserv- 
ing the  conditions  under  which  there  may  be  that 


444  THE  FLOW  OF  VALUE 

augmentation.  To  this  preservation  is  necessary 
a  temporary  disturbance  in  the  relations  between 
debits  and  credits. 

In  case  of  war  there  is  at  once  a  disturbance  in 
the  relations  between  supply  and  demand.  A  large 
proportion  of  the  population  engaged  in  produc- 
tive effort  is  placed  under  arms,  and  a  large  pro- 
portion of  the  population  remaining  is  obliged  to 
put  forth  its  efforts  in  the  production  of  arms  and 
munitions  of  war,  and  of  supplies  for  the  soldiers. 
There  is  left  a  smaller  proportion  of  the  popula- 
tion for  the  production  of  final  utilities  of  ordinary 
use  and  consumption.  As  the  supply  of  these  utili- 
ties falls  in  relation  to  the  demand,  prices  rise. 
In  time  of  peace,  rising  prices  for  utilities  of  wide- 
spread demand  tend  toward  an  increase  in  their 
production,  and  a  fall  in  their  prices;  but  in  the 
emergency  of  war  increase  in  the  production  of 
such  utilities  can  be  effected  only  by  extraordi- 
nary measures,  or  it  may  be  that  it  can  not  be  ef- 
fected. As  prices  rise,  it  is  only  those  with  larger 
credits  who  can  purchase  final  utilities  in  the  same 
volume  as  before.  If  there  is  a  continuing  and 
general  rise  in  prices,  it  will  be  only  those  with 
adequate  credits  who  can  purchase  even  the  util- 
ities essential  to  existence.  Thus  it  may  be  that 
a  considerable  portion  of  the  population,  not  only 
of  those  whose  efforts  are  needed  in  the  immediate 
provision  of  utilities,  but  of  those  whose  existence 
contributes  to  the  general  welfare,  will  be  sub- 


SOUND  MINDS  IN  SOUND  BODIES      445 

jected  to  privation.  The  government  certainly  is 
justified  in  undertaking  that  regulation  which 
will  conduce  to  the  physical  and  mental  efficiency 
of  every  one  whose  physical  and  mental  efficiency 
would  be  maintained  in  times  of  peace.  It  may 
attempt  to  do  this  by  that  prescription  of  prices 
which  will  enable  those  with  moderate,  or  even 
small,  resources  to  maintain  their  existence.  In 
any  event,  there  will  be  a  fall  in  the  supply  in 
relation  to  the  wants  that  must  be  met.  The  gov- 
ernment may  adopt  stringent  measures  toward 
that  increase  in  production  which  will  augment 
the  supply,  or  it  may  impose  such  limitations  upon 
purchases  that  the  available  production  will  suffice 
to  provide  subsistence  for  the  greatest  number,  or 
it  may  resort  to  both  expedients. 

The  situation  is  not  without  analogy  to  that  of 
passengers  in  a  train  unexpectedly  snowbound  in 
a  mountain  fastness,  perhaps  beyond  hope  of 
relief  for  several  days,  and  for  whom  the  only 
food  available  were  that  in  an  isolated  railroad 
eating-house.  If  the  proprietor  were  to  ad- 
vance his  prices  for  sandwiches  and  coffee  in  ac- 
cordance with  the  abnormal  demand,  the  passen- 
gers with  plenty  of  money  in  their  pockets  might 
buy  the  entire  stock,  and  the  less  fortunate  be 
deprived  of  food.  There  would  then  be  no  possi- 
bility of  rising  demand  stimulating  production. 
There  would  be  the  problem  of  maintaining  the 
existence  of  human  beings,  until  they  could  be 


446  THE  FLOW  OF  VALUE 

brought  under  the  conditions  under  which  there 
would  be  the  normal  working  of  supply  and  de- 
mand. There  is  the  reflection  that  the  proprietor 
of  the  eating-house,  whose  business  had  suffered 
interference,  might  be  justified  in  advancing  hia 
prices  to  the  limit  within  which  there  might  be 
an  equitable  apportionment  of  the  available  sup- 
ply of  food.  In  case  of  war,  however,  the  rising 
demand  is  not  accompanied  with  the  cessation  of 
production.  Production  continues  by  a  reduced 
number  of  persons,  but  its  volume  must  meet  the 
essential  wants  of  the  population  not  under  arms, 
and  of  the  population  under  arms. 

It  is  a  question  if  the  good  of  the  nation  would 
not  the  better  be  served  if  the  government  were 
completely  to  annul  the  working  of  supply  and 
demand,  in  its  commercial  sense.  If  to  the  preser- 
vation of  the  nation  the  government  drafts  men 
to  be  sent  to  combat,  why  should  it  not  place  all 
of  the  able-bodied  who  remain,  under  draft  in  the 
provision  of  the  utilities  that  must  be  produced? 
Then  could  be  avoided  the  extraordinary  profit 
reaped  by  those  responsible  for  the  production  of 
arms  and  munitions,  and  there  could  be  avoided 
the  payment  of  the  extraordinary  wages  to  their 
employees  with  the  result  that  other  employees, 
whose  efforts  are  no  less  effective  in  promoting 
the  welfare  of  the  nation,  are  placed  at  a  disad- 
vantage. Then  perhaps  there 'could  be  a  diminu- 
tion in  that  drain  of  taxation  from  which  this  high 


SOUND  MINDS  IN  SOUND  BODIES      44.7 

profit  and  these  high  wages  are  paid.  This  would 
mean  a  diminution  in  the  issues  of  bonds  whereby 
are  obtained  the  credits  from  which  this  high  profit 
and  these  high  wages  are  paid.  Then  perhaps 
after  the  war  there  more  readily  could  be  the  re- 
sumption of  production,  of  buying  and  selling  at 
prices  bearing  a  due  relation  to  the  credits  that 
accrued  prior  to  the  war,  instead  of  a  continua- 
tion of  the  inflated  prices  due  to  the  bidding 
against  each  other  of  those  whose  wants  must  in 
any  event  be  met. 

In  time  of  peace  when  production,  buying,  and 
selling  are  adjusted  by  supply  and  demand,  the 
fundamental  principle  of  bargaining,  that  in  an 
exchange  a  man  will  obtain  the  most  he  can  for 
that  with  which  he  parts,  and  will  yield  as  little 
as  he  can  for  that  which  he  obtains,  leads  in  the 
long  run  to  each  person  securing  that  which  he 
wants  at  the  lowest  obtainable  price — that  is,  to 
the  buying  and  selling  of  the  greatest  measures 
of  utilities  for  the  dollar — which  will  encourage 
the  production  of  that  supply  for  which  there  is 
a  compensatory  demand.  It  may  be  demonstrated 
that  the  adjustment  thus  effected  leads  in  the  long 
run  to  the  greatest  benefit  to  all,  to  the  greatest 
development  of  sound  minds  in  sound  bodies. 

It  would  seem  to  go  without  saying  that  as  a 
rule  the  greater  the  supply  of  utilities  of  the  kinds 
that  meet  his  wants  which  an  individual  can  obtain 


448  THE  FLOW  OF  VALUE 

in  return  for  the  credit  that  has  accrued  to  him, 
the  better  will  he  be  enabled  to  maintain  himself 
and  those  dependent  upon  him  in  a  condition  of 
mental  and  physical  efficiency.  Therefore,  the 
greater  the  volume  of  utilities  that  contribute  to 
mental  and  physical  efficiency  that  are  produced 
in  relation  to  the  population,  the  greater  will  be 
the  proportion  for  each  person.  This  means  that 
each  utility  must  be  produced  in  the  volume  for 
which  there  is  demand  with  the  efforts  of  the  few- 
est persons  continuously  capable  of  that  produc- 
tion. This  moans  that  the  prices  of  utilities  in 
relation  to  the  effort  applied  in  their  production 
will  be  low;  that  is,  that  for  a  given  measure  of 
human  effort  can  be  obtained  the  greatest  meas- 
ures of  utilities. 

It  is  to  the  advantage  of  the  entire  population 
that  utilities  be  obtainable  at  the  lowest  prices 
that  will  encourage  their  adequate  production. 
This  means  that  wages  must  be  the  lowest  that 
can  be  paid  in  relation  to  the  volume  of  produc- 
tion. If  higher  wages  be  paid,  there  is  a  smaller 
volume  of  production  in  relation  to  the  wage,  and 
there  is  the  expenditure  of  credits  that  could  be 
otherwise  utilized.  But  if  higher  wages  be  paid 
for  more  effective  effort,  there  is  greater  efficiency 
of  production  in  relation  to  the  effort  applied. 
As  substance,  intermediate  utilities,  instruments 
of  production,  and  final  utilities  are  the  results 
of  the  application  of  effort,  it  follows  that  the 


SOUND  MINDS  IN  SOUND  BODIES      449 

prices  of  all  of  these  utilities  must  be  the  lowest 
that  will  elicit  their  adequate  production.  If 
higher  prices  be  paid  for  any  utility  than  requisite 
to  this  end,  there  is  expenditure  that  could  have 
been  utilized  in  other  production. 

The  working  of  supply  and  demand  does  not 
mean  that  there  should  be  no  restriction  upon 
production,  upon  buying  and  selling.  The  very 
expression  implies  that  there  must  be  the  restric- 
tion of  production  to  the  volume  which  meets  de- 
mand. Unrestricted  production,  buying,  and  sell- 
ing loads  at  times  to  overproduction. 

Production  in  excess  of  that  for  which  compen- 
satory prices  can  be  obtained  means  that  all  en- 
gaged in  that  production  will  not  receive  the  utili- 
ties that  will  enable  them  so  to  continue.  A  cer- 
tain number,  perhaps,  can  find  employment  in 
other  production,  but  if  overproduction  is  wide- 
spread, affecting  many  kinds  of  utilities,  there 
may  ensue  widespread  unemployment.  This  con- 
dition has  frequently  resulted  from  the  produc- 
tion of  utilities  of  a  given  kind  by  many  different 
producers  in  ignorance  of  the  total  volume  that 
would  be  forthcoming  from  all  of  them,  and  who 
have  not  made  an  approximately  accurate  esti- 
mate of  what  the  market  would  absorb  at  compen- 
satory prices.  In  the  exceptional  case  of  utilities 
that  are  produced  only  upon  definite  orders,  there 
can  not  be  such  overproduction.  But  when  there 
is  widespread  overproduction  of  utilities  causing 


460  THE  FLOW  OF  VALUE 

widespread  unemployment,  there  is  falling  demand 
for  all  kinds  of  utilities.  Hence  there  is  a  dimin- 
ishing utilization  of  the  instruments  used  in  pro- 
duction, and  consequent  lack  of  employment.  In 
the  case  of  nonperishable  utilities,  the  overproduc- 
tion may  be  absorbed  in  the  course  of  time,  but  in 
the  meantime  there  is  idleness  of  instruments,  and 
unemployment  of  wage-earners.  In  the  case  of 
perishable  utilities,  such  as  many  of  the  foodstuffs, 
there  is  notable  waste,  and  the  effort  devoted  to 
the  excess  of  production  has  been  wasted. 

Those  responsible  for  the  processes  of  produc- 
tion have  sought  to  prevent  overproduction 
through  coordination  for  the  purpose  of  limiting 
production  to  the  requirements  of  the  market,  and 
of  directing  utilities  that  have  been  produced  to 
the  markets  where  they  can  be  sold  at  compensa- 
tory prices.  For  example,  a  committee  of  whole- 
sale dealers  in  butter  meets  each  day  in  the  city 
of  New  York.  To  it  are  presented  statements  of 
the  quantity  of  butter  in  stock  in  the  city.  It  esti- 
mates the  further  quantity  that  will  be  required 
for  consumption  during  the  immediately  succeed- 
ing days,  and  determines  the  price  which  it  be- 
lieves will  cause  that  supply  to  be  forthcoming, 
fixing  a  somewhat  higher  price  if  the  supply  on 
hand  is  scant  than  if  it  is  abundant.  This  price 
is  telegraphed  to  the  producers  of  butter  through- 
out the  region  whence  comes  the  supply  for  the 
vast  community  of  which  Manhattan  is  the  heart. 


SOUND  MINDS  IN  SOUND  BODIES      451 

By  thus  adjusting  the  shipment  of  butter  to  New 
York,  this  committee  parallels  in  methods  and  re- 
sults what  the  governors  of  the  Bank  of  England 
do  in  adjusting  the  flow  of  gold  into  and  out  of 
England  by  fixing  the  rates  of  discount.  In  many 
parts  of  the  country,  vegetable  and  fruit  growers 
who  had  been  consigning  their  products  to  differ- 
ent markets  more  or  less  at  a  venture,  with  the 
result  that  there  was  often  a  glut  in  one  market 
and  a  paucity  in  another,  have  formed  associations 
by  means  of  which  the  supply  in  respective  mar- 
kets is  more  closely  adjusted  to  the  demand. 

Conspicuous  among  the  attempts  to  prevent 
overproduction  have  been  the  measures  taken  by 
manufacturers.  First  there  were  agreements  to 
maintain  prices,  then  trusts,  then  the  amalgama- 
tion of  different  organizations  into  one  corpora- 
tion, then  agreements  between  corporations,  then 
the  holding  company,  and  finally  the  merger  and 
amalgamation  of  separate  corporations  into  one 
great  corporation.  This  tendency  awakened  pop- 
ular antagonism,  because  of  the  fear  that  there 
would  be  the  stifling  of  competition,  and  inordi- 
nately high  prices.  This  fear  in  many  cases  for 
a  time  was  realized.  Obviously,  when  a  large 
corporation  raises  the  prices  of  its  products,  many 
who  would  purchase  at  lower  prices  are  deprived 
of  them.  But  when  there  is  extraordinary  profit, 
competition  is  certain  to  be  engendered  soon  or 
late.    Obviously,  the  development  of  the  great- 


452  THE  FLOW  OF  VALUE 

est  number  of  sound  minds  in  sound  bodies  means 
that  there  should  be  the  least  possible  deprivation 
because  of  that  unemployment  which  leaves  a 
wage-worker  without  means  wherewith  to  pur- 
chase the  utilities  he  needs,  and  also  the  least  pos- 
sible degree  of  deprivation  because  of  prices 
higher  than  are  requisite  to  allow  profit  to  the 
least  eflScient  producer  for  whose  product  there 
is  demand. 

When  a  business  organization,  or  an  association 
of  business  organizations,  so  controls  the  produc- 
tion of  utilities  of  a  given  kind  for  which  there 
is  continuing  demand  which  must  be  met,  that  it 
is  enabled  to  fix  prices  without  fear  of  competi- 
tion, it  has  a  monopoly.  Thus  it  may  so  fix  the 
price  as  to  obtain  extraordinary  profit.  The  ques- 
tion arises  whether  it  is  better  for  the  government 
to  attempt  to  remedy  this  condition  by  prescrib- 
ing prices,  or  by  compelling  the  monopolistic 
prices  to  be  brought  into  the  light  which  will  dis- 
close injustice,  if  injustice  has  been  done. 

Quite  as  conspicuous  as  the  combination  of  those 
responsible  for  the  production  of  utilities  are  the 
combinations  of  those  who  put  forth  effort  for 
wage,  known  as  trade  unions.  By  concerted  ac- 
tion, trade  unions  have  at  times  secured  higher 
wages  for  their  members  than  otherwise  would 
have  been  possible,  wages  oftentimes  higher  than 
those  for  which  other  employees  of  the  same  de- 
gree of  efficiency  could  have  been  secured. 


SOUND  MINDS  IN  SOUND  BODIES      453 

The  evolution  toward  larger  and  more  complex 
organizations  has  woven  the  individual  into  a 
web  that  causes  the  unrestrained  application  of 
the  previously  accepted  principle  of  competition 
to  be  injurious.  In  the  earlier  stages  of  industry 
and  commerce,  an  individual  could  buy  or  could 
sell  at  any  given  price,  or  he  could  refuse  to  buy 
or  to  sell.  He  could  work  for  any  given  wage,  or 
he  could  refuse  to  work  for  wage.  His  decision 
redounded  to  his  benefit  or  to  his  injury,  and  per- 
haps to  the  benefit  or  to  the  injury  of  those  de- 
pendent upon  him,  but  as  a  rule  had  little  effect 
upon  others.  But  at  this  time  when  the  price  of 
a  given  utility  has  an  effect  in  determining  the 
prices  of  other  utilities,  when  the  price  limits  the 
wage  that  can  be  paid  to  those  engaged  in  pro- 
duction ;  when  the  wage  paid  in  the  production  of 
a  given  utility  has  an  effect  in  determining  the 
wages  paid  in  the  production  of  other  utilities; 
when  wage  and  price  have  an  effect  in  determin- 
ing profit;  and  when  the  profit  obtained  from  the 
production  of  a  given  utility  has  an  effect  upon 
the  profit  obtained  from  other  production  and 
upon  the  volume  of  future  production,  the  price 
of  any  utility  of  general  need  may  have  a  far- 
reaching  effect  upon  the  promotion  of  sound 
minds  in  sound  bodies. 

In  less  degree  are  prices  and  wages  determined 
by  isolated  bargaining  between  buyer  and  seller, 
and  employer  and  employee.    They  are  now  in- 


464  THE  FLOW  OF  VALUE 

fluenced  by  many  factors.  Again  the  question 
rises  as  to  whether  the  determination  can  be  bet- 
ter effected  by  those  engaged  in  buying  and  sell- 
ing, or  "whether  there  shall  be  resort  to  other 
agencies,  or  whether  the  government  shall  under- 
take the  determination. 

Unrestrained  competition  means  that  each  party 
to  a  bargain  endeavors  to  obtain  all  that  he  can. 
Seldom  is  the  effect  upon  others  considered;  sel- 
dona  is  consideration  given  to  the  effect  upon  the 
continuity  of  production,  of  buying  and  selling, 
upon  employment  and  unemployment,  upon  the 
general  welfare.  In  a  higher  state  of  enlighten- 
ment, the  effect  upon  others  must  be  considered. 
If  those  responsible  for  the  processes  of  produc- 
tion, of  buying  and  selling,  and  if  those  who  work 
for  wage  always  acted  in  the  light  of  the  widest  in- 
formation and  in  a  spirit  of  the  highest  enlighten- 
ment, it  is  clear  that  industrial  conflicts  would 
diminish. 

The  evolution  of  industry  and  commerce  is  un- 
mistakably toward  the  production,  buying,  and 
selling  of  the  utilities  of  general  use  and  consump- 
tion by  great  corporations,  and  to  an  increasing 
concord  of  action  between  the  corporations  en- 
gaged in  the  same  line  of  industry.  An  adminis- 
trative and  executive  board  constituted  of  men 
of  proved  integrity,  of  large  experience,  and  broad 
grasp  can  obtain  the  widest  information  from  time 
to  time  as  to  the  probable  demand  for  the  prod- 


SOUND  MINDS  IN  SOUND  BODIES      466 

ucts  with  which  it  is  concerned,  and,  therefore, 
can  make  the  provisions  that  will  most  closely 
approximate  that  demand.  As  there  is  an  ever 
closer  interweaving  of  all  the  processes  of  in- 
dustry and  commerce,  it  would  follow  that  an 
administrative  board,  composed  of  representa- 
tives of  the  boards  administering  each  great  divi- 
sion of  industry  and  commerce,  could  maintain 
that  relativity  between  the  production  of  sub- 
stances of  the  different  kinds,  their  transforma- 
tion, and  the  proportions  in  which  final  utilities 
would  be  produced,  the  provision  of  instruments 
of  production,  of  means  for  transportation,  and 
that  utilization  of  the  credits  which  came  to  the 
various  organizations,  that  \^K)uld  result  in  a  mini- 
mum of  overproduction  or  of  underproduction. 

Even  though  the  farmer  has  less  control  over 
the  cosmic  force  that  is  a  principal  factor  in  his 
production,  than  have  those  who  transport  and 
transform  substance  over  the  cosmic  force  they 
apply,  and  though  he,  therefore,  is  less  able  to 
forecast  the  volume  of  production  that  will  follow 
a  given  expenditure,  the  volume  of  the  crops  of 
the  respective  kinds  could  be  far  more  closely  ad- 
justed to  demand  if  there  were  greater  coordina- 
tion in  their  planting  and  conservation.  It  has 
been  stated  by  high  agricultural  authority  that  the 
will  of  man  has  more  effect  upon  the  volume  of 
agricultural  production  than  the  weather.  He  can 
sow  in  prepared  soil  selected  seed  from  which 


456  THE  FLOW  OF  VALUE 

will  spring  the  stronger  plants  that  in  consider- 
able degree  resist  inclement  changes  in  the 
weather,  and  he  can  protect  them  from  weeds  and 
parasites.  He  can  breed  animals  from  selected 
strains  and  protect  them  from  vicissitudes.  If  in 
agriculture  were  sought  the  attainment  of  the 
greatest  production  in  relation  to-  the  number  of 
persons  whose  efforts  are  applied,  those  engaged 
in  the  production  would  not  be  so  near  the  margin 
of  deprivation  when  the  yield  fell  short  of  expec- 
tations. Thus  would  the  needs  of  the  whole  peo- 
ple be  better  served. 

By  means  of  developed  statistical  and  account- 
ing systems  adapted  to  the  respective  phases  of 
production,  of  buying,  and  selling  there  could  be 
gaged  the  efficiency  of  each  person,  the  efficacy 
of  every  instrument,  and  thus  there  could  be  ob- 
tained the  maximum  of  production  in  relation  to 
the  effort  of  each  person  with  due  allowance  for 
rest,  recreation,  and  self-development.  Through 
explicit  and  comprehensive  reports,  the  status  and 
achievement  of  each  organization  could  be  placed 
before  every  person  with  the  intelligence  to  under- 
stand them. 

The  maintenance  of  a  due  relativity  between  all 
the  processes  of  industry  and  commerce  would 
mean  a  minimum  of  unemployment.  Inasmuch 
as  every  person  capable  of  putting  forth  effort 
in  production  has  the  capacity  for  making  contri- 
bution toward  meeting  the  wants  of  others,  and 


SOUND  MINDS  IN  SOUND  BODIES      457 

has  the  capacity  for  consuming  utilities  produced 
by  the  efforts  of  others,  it  would  seem  contrary 
to  the  nature  of  things  that  there  should  not  be  a 
place  in  the  industrial  and  commercial  organiza- 
tion -for  every  such  person.  If  there  were  ade- 
quate adjustment  of  the  putting  forth  of  effort  in 
the  meeting  of  wants,  there  would  never  be  a  con- 
siderable number  of  the  employable  without  em- 
ployment. If  the  production  of  utilities  were,  as 
a  rule,  to  increase  in  relation  to  the  number  of 
those  engaged  in  their  production,  it  would  seem 
that  every  capable  person  ought  to  be  able  to 
obtain  the  utilities  requisite  to  the  support  not 
only  of  himself  but  of  his  family. 

It  is  a  common  saying  that  capital  is  accumu- 
lated by  saving.  From  this  it  can  not,  however, 
be  deduced  that  a  man  should  save  no  matter  how 
little  he  receives.  If  a  man  can  earn  no  more 
than  sufficient  to  maintain  the  physical  and  mental 
eflficiency  of  himself  and  his  family,  is  he  justified 
in  impairing  that  physical  and  mental  efficiency 
in  the  endeavor  to  accumulate  business  capital? 
This  query  does  not  include  investment  in  insur- 
ance, which  every  one  who  is  without  other  re- 
course ought  to  make  against  the  privation  that 
otherwise  would  be  caused  by  illness,  accident,  un- 
employment, superannuation,  and  death.  Such 
investment  is  of  the  nature  of  business  capital,  for 
it  is  so  utilized  by  the  insurance  company.    Phys- 


468  THE  FLOW  OF  VALUE 

ical  eflBciency  does  not  suffer  because  of  a  certain 
degree  of  frugality  of  living,  and  mental  efficiency 
may  be  promoted  by  a  degree  of  frugality  of  liv- 
ing. It  is  not  to  be  assumed  that  this  is  to  be  car- 
ried to  an  extreme.  If  all  persons  lived  with  the 
utmost  frugality  with  which  physical  efficiency 
could  be  -maintained,  would  not  the  peoples  of 
civilization  be  without  many  of  the  utilities  which 
minister  to  the  fullness  of  life?  To  the  highest 
development  are  there  not  requisite  the  refine- 
ments of  dwelling,  utilities  that  minister  to  the 
mind  and  the  soul  as  well  as  the  body?  The  less  a 
man  expends  for  individual  use  and  consumption 
of  that  which  he  receives,  the  more  he  will  have  for 
investment  toward  the  attainment  of  further  cred- 
its. If  he  elect  to  live  in  miserly  squalor,  credits 
may  roll  up  to  his  account,  but  the  chances  are  that 
the  quality  of  his  individual  effort  will  be  im- 
paired, and  certainly  his  life  will  be  narrow. 

All  that  is,  is  in  eternal  motion.  Motion  is  ac- 
tivity: activity  is  the  manifestation  of  force.  As 
there  can  not  be  the  manifestation  of  force  with- 
out effect,  there  is  the  continual  flow  of  cause  and 
effect.  The  working  of  eternal  force  is  manifested 
in  the  forms  of  existence.  As  animate  existence 
has  evolved,  there  has  evolved  consciousness. 
Out  of  consciousness  has  evolved  intelligence. 
The  highest  type  of  all  the  forms  of  existence 
known   to   man,   is   man   himself.    His   body   is 


SOUND  MINDS  IN  SOUND  BODIES      469 

adapted  to  serve  more  varied  purposes  than  that 
of  any  other  living  creature.  His  intelligence  en- 
ables him  to  make  all  that  is  in  his  environment 
serve  farther  reaching  purpose  than  does  that  of 
any  other  living  creature. 

There  is  activity  within  the  human  body,  awake 
or  asleep,  in  sickness  or  in  health,  from  birth  un- 
til death.  The  human  mind  is  consciously  active 
during  the  waking  hours.  The  conscious  activity 
of  the  mind  directs  the  voluntary  activity  of  the 
body.  The  mind  decrees  the  purpose  the  body 
shall  serve,  and  how  it  shall  serve  it.  Therefore, 
the  mind  must  know  the  purpose  to  be  served,  and 
how  it  must  be  served. 

If  more  is  used  than  is  necessary  to  serve  a 
purpose,  there  has  been  waste,  in  that  the  super- 
fluous could  have  been  applied  to  serve  another 
purpose.  If  less  is  used  than  is  required,  there 
has  been  waste,  because  the  purpose  has  not  been 
fully  served.  The  first  principle  of  architecture 
is  that  a  building  shall  be  of  the  utmost  adapta- 
bility for  the  purpose  it  is  designed  to  serve. 
Without  this,  there  can  be  neither  beauty  nor  ele- 
gance. With  this,  the  construction  may  be  given 
all  of  the  grace  and  symmetry  the  service  of  the 
purpose  will  permit.  The  structure  may  be  given 
the  decoration  that  promotes  beauty,  but  there 
may  be  no  construction  for  decoration  alone  be- 
cause that  would  not  aid  in  serving  the  purpose. 
It  would  be  superfluous,  and  superfluity  is  ugliness. 


400  THE  FLOW  OF  VALUE 

Ought  not  this  principle  to  govern  all  of  the 
activity  of  man?  Ought  not  food  be  consumed  in 
the  measure  that  best  serves  the  efficiency  of  body 
and  brain  ?  Ought  not  clothing  be  that  which  best 
protects  the  body  and  allows  the  fullest  play  of 
the  bodily  organs?  Then  there  may  be  given  to 
the  service  of  food  all  that  furthers  the  beauty  of 
the  service,  and  to  the  fashioning  of  clothing  all 
that  furthers  elegance.  Ought  not  this  principle 
to  govern  all  that  is  within  the  habitation? 

Ought  not  this  principle  to  have  application 
throughout  the  processes  of  industry  and  com- 
merce, all  of  production,  buying  and  selling?  The 
application  of  the  superfluous  enlists  effort  that 
might  have  been  applied  in  the  production  of  that 
which  serves.  If  all  of  the  effort  exerted  in  pro- 
duction were  applied  in  due  relativity,  there  would 
be  neither  superfluity  nor  insufficiency  in  the  ap- 
plication of  force  in  the  production  of  utilities  of 
any  kind.  If  there  were  no  demand  for  other 
than  beneficial  utilities,  there  would  be  no  appli- 
cation of  force  in  the  production  of  deleterious 
utilities.  If  all  of  the  force  available  in  produc- 
tion were  applied  by  the  sound  mind  in  the  sound 
body,  there  would  be  an  abundance  of  all  things 
that  would  serve  the  needs  of  every  person,  ample 
for  the  support  and  training  of  the  generation  that 
is  coming,  for  the  care  and  comfort  of  the  genera- 
tion that  is  passing. 

Then  the  relation  of  the  activities  of  each  per- 


SOUND  MINDS  IN  SOUND  BODIES      461 

son  to  the  activities  of  all  other  persons  from  the 
standpoint  of  the  production,  the  buying  and  sell- 
ing of  utilities,  would  still  be  indicated  by  dollars. 
The  abundance  for  every  one  of  all  that  dollars 
mean  would  cause  no  diminution  in  the  impor- 
tance of  the  activities  that  give  rise  to  debits  and 
credits  expressed  in  dollars.  A  greater  impor- 
tancfe  would  attach  to  the  activities  that  promote 
the  beauty  and  fullness  of  living.  The  captain 
of  industry,  the  great  merchant,  the  great  banker, 
would  be  esteemed  not  alone  because  of  the  vol- 
ume of  the  debits  and  credits  for  which  they  were 
responsible,  but  also  because  of  the  contribution 
to  the  benefit  of  their  fellowmen  which  gave  rise 
to  that  volume  of  debits  and  credits.  Approval 
or  censure  would  be  meted  unto  them  because  of 
the  manner  of  their  expenditure,  and  the  manner 
of  their  lives.  They  would  be  esteemed  for  their 
achievement  as  the  scientist,  the  philosopher,  the 
teacher — he  who  adds  to  the  sum  of  human  knowl- 
edge and  the  diffusion  of  intelligence — is  es- 
teemed. 

To  the  utmost  development  of  the  mind  and  cul- 
tivation of  all  that  makes  life  worth  living  is  neces- 
sary no  great  accumulation  of  final  utilities  of 
personal  gratification.  They  may  burden  rather 
than  serve.  It  is  a  lasting  reassurance  and  com- 
fort to  reflect  that  greater  sources  of  satisfaction 
lie  in  the  wholesome  exercise  of  the  physical  and 
mental  faculties,  in  the  domestic  affections,  the 


462  THE  FLOW  OF  VALUE 

goodwill  of  friends,  and  the  esteem  of  the  com- 
munity. These  could  be  attained  by  every  person, 
did  every  person  strive  to  bring  about  the  con- 
ditions conducive  to  their  attainment. 


THE  END 


INDEX 


Acceptances,  416  f. 

Accounting  systems,  456.  See 
also  Bookkeeping. 

Accounts,  necessity  of,  in  fami- 
lies, 265. 

Actors,  214. 

Allies:  relation  of,  to  produc- 
tion in  United  States,  224; 
227. 

Appliances,  124.  * 

Artisan:  22;  evolution  of,  37; 
development  of  prices  of, 
products,  64-83. 

Asia,  8. 

Atom,  268. 

Automobiles,  225. 

Availability,  value  of,  in  real 
estate,  127  f. 


B 


Bank  credit:  43,  47;  defined, 
44.     See  Money,  Credit. 

Bank  loans,  407  ff. 

Bank  notes :  f imctions  of,  42  f . ; 
transmutation  of  property 
into,  44;  235;  as  money, 
387  f .    See  also  Notes. 

Bank  system,  trend  of  modern, 
424-435. 

Bank  of  England,  methods  of 
adjusting  flow  of  gold,  450  f. 

Banks:  evolution  of,  387  f;  in- 
terrelation of,  389  ff.;  effect 
of,  upon  transactions,  390  f . ; 
functions    of    modern,    402- 


423;  present  tendency  of, 
434  f. 

Bargaining:  evolution  of, 
35  ff. ;  mediaeval,  37  f . ;  ten- 
dency of,  158  f.;  benefits  of, 
220  f. 

Bills  of  exchange,  functions  of, 
48  f. 

Bodies,  dependence  of  sound 
minds  upon   sound,  437-462. 

Bonds:  investment  in,  183  ff.; 
government,  explained,  228 ; 
variation  in  value  of,  420. 

Bookkeeping :  evolution  of, 
253  ff. 

Bullion,  387. 

Business:  primitive,  35;  medi- 
aeval, 37  f.  See  also  Trade, 
Commerce,  Transactions. 

Business  capital,  defined,  259  f. 
See  Capital. 


C 


Caisae,  mediaeval,  387. 

Capacity:  244;  bodily  and  men- 
tal, standard  of  greatness, 
459  f. 

Capital:  discussion  of,  252- 
265;  defined,  25D;  human  ef- 
fort as,  260  ff. ;  investment 
of,  260  f . ;  sources  of,  260  ff. ; 
necessity  for  augmentation 
of,  260  f . ;  application  of  cos- 
mic force  to,  263  f . ;  distinc- 
tion between,  and  labor,  314- 
318;  business,  457. 

Carpets,  163. 


463 


464 


INDEX 


Cause:  sequence  of,  and  effect, 
16. 

Cellulose,  24. 

Census  bureau,  25. 

Charity,  81. 

Checks :  42  f. ;  uses  of,  381:  u. 
See  Drafts. 

Chest:  mediseval,  first  bank, 
.•J87. 

Chicago,  9. 

China,  unit  of  exchange  in,  41. 

Chlorophyll,  24. 

Civilization:  effect  of,  upon 
human  wants,  4ff.;  influence 
of,  upon  artistic  develop- 
ment, 17;  dependence  of, 
upon  profit,  200  ff. 

Clearing  house,  development  of, 
391. 

Clothes:  transformation  of  raw 
material  into,  6;  87;  produc- 
tion of,  191;  202. 

Coin:  29  ff.;  235;  unit,  378. 
See  also  Currency,  Money, 
Unit  of  Exchange. 

Collectors,  art:  effect  of,  on 
profit,  129. 

Colonial  period,  exchange  dur- 
ing, 53  ff. 

Commerce:  development  of,  in 
United  States,  136-141; 
growth  of  international, 
141  f.;  significance  of  dollar 
in  development  of,  375  f . ;  evo- 
lution of,  452  f.;  possible  ad- 
ministration of,  454.  See 
also  Barter,  Trade,  Ex- 
change. 

Compensation:  law  of,  defined, 
18  ff. 

Competition :  evolution  of, 
36  f.;  tendency  of,  187;  ef- 
fect of,  upon  business  devel- 
opment, 187.  See  also  Bar- 
gaining, 

Congress:  in  relation  to  Court 


of  Claims,  440.  See  United 
States,  Government,  Federal 
Government. 

Coordination:  of  human  effort, 
84-113;  profit  due  to,  of 
human  effort,  93-113;  of  em- 
ployer and  employee,  200  ff. 

Correlation  of  human  effort 
and  human  wants,   143-153. 

Corporations:  183  ff.,  451,  452; 
development  of,  dependent 
upon  competition,  187;  duty 
of,  to  employees,  206  f . ; 
sources  of  capital  of,  261  ff. 

Cosmic  force:  relation  of,  to 
matter,  6  ff. ;  application  of, 
16  f.;  by  machinery,  114- 
135;  relation  of,  to  indus- 
trial development,  142  f. ;  in 
oil  production,  157  f;  meas- 
urement of,  270;  control  of, 
455  ff. 

Cotton :  225 ;  transformation 
of,  into  clothing,  6. 

Court  of  Claims:  jurisdiction 
of,  in  proceedings  by  a  citi- 
zen against  United  States, 
440. 

Craftsman,  evolution  of,  37. 

Credit:  defined,  44  f.,  45;  effect 
of  value  fluctuation  upon, 
169  f.;  government,  how  ob- 
tained, 228  ff.  See  also 
Coin,  Money,  Bank  Notes, 
Bank  Credit. 

Credits:  flow  of,  130  ff.,  213- 
231 ;  accumulation  of,  181 ; 
availability  of,  198  ff.;  235; 
accumulated,  due  to  produc- 
tion, 323  f.;  in  return  for 
man-hours,  338-345 ;  reten- 
tion of,  364-368;   458. 

Crops:  193;  "futures"  on, 
246  f. 

Currency:  defined,  43;  full 
meaning  of,  388  ff.    See  also 


INDEX 


465 


Bank    notes,    Gold,    Bullion, 
Silver. 

D 

Debits:  flow  of,  130 ff.;  2ia- 
231. 

Debt,  defined,  45. 

Deficit,  causes  of,  411  f. 

Definitions,  explanation  of,  22- 
33. 

Demand:  defined,  35;  increase 
of,  36  ff . ;  eflFect  of  increase 
of  population  on,  82 ;  effect 
of,  on  profit,  130  ff.;  flow  of, 
142;  effect  of  World  War  on, 
224  ff . ;  interrelation  between 
supply  and,  as  regards 
money,  392  ff . ;  relation  of  to 
wages,  443.     See  Want. 

Depression,  effect  of  business, 
upon  profit,  374  f. 

Desires :  primitive,  34  f . 

Dividends,  182, 

Dollar:  nexus  of  exchange  ra- 
tios, 49;  variation  of  pur- 
chasing power  of,  365-376. 
See  also  Unit  of  Exchange, 
Money,  Coin. 

Draft :  function  of,  42  f . 

Dwellings :  material  entering 
into,  6  f.;  235. 


E 


Education,  effect  of  upon  labor, 
205  f. 

"Effectiveness,"  distinction  be- 
tween, and  efficiency,  298  f. 

Effort:  34;  interrelations  of, 
prices,  and  profit,  188-212. 
See  Human  Effort. 

Efliciency:  effect  of,  upon 
credit,  81  f.;  in  relation  to 
profit,  85  f . ;  necessity  of,  to 


profit,  132  ff.;  wage-stand- 
ard, 147  f.;  defined,  197; 
distinction  between,  and  "ef- 
fectiveness,"  298  f . ;    442 ;    ef- 

.   feet  of  saving  upon,  457  f. 

Electricity,  16. 

Electrons,  268. 

Employment,  79,  96-113,  132, 
1.35,  210,  453.     See  Labor. 

Employee:  as  economic  utility, 
79  f.;  regulation  of  wage  of, 
96-113;  dependence  of  profit 
upon,  135.  See  also  Artisan, 
Labor,  Wage-earners. 

Employer:  relation  of,  to  prod- 
ucts of  artisans,  64  ff.;  in  re- 
lation to  prices  and  profit, 
96-113;  relation  of  to  eco- 
nomic development,  114  ff.; 
direction  of  coordination  by, 
132  ff. ;  duty  of,  to  em- 
ployees, 206  f . ;  as  wage- 
earners,  210;  as  effecting 
prices,  453  f. 

Environment:  effect  of  upon 
judgment,  3  ff. ;  man's  reac- 
tion upon,  13  f. ;  influence  of, 
upon  human  effort,  186  f; 
225,  230. 

Equipment,  225,  230. 

Europe,  8. 

Exchange:  defined,  18;  of  util- 
ities, 33  ff. ;  evolution  of, 
35  ff.;  attitude  of  humanity 
toward,  36  ff. ;  mediaeval, 
37  ff.;  relativity,  40  f.; 
money  as  medium  of,  41  ff.; 
barter  as  first  form  of,  58; 
ratio,  47  ff.,  53  ff.;  evolution 
of  the  artisan  in  relation  to, 
64-83;  results  of  increase  in, 
141  f.;  by  individuals,  286- 
299;  true  significance  of, 
ratio,  345-352;  relation  be- 
tween money  and,  278  ff.; 
unit    of,    34-51,    379  ff.;    ac- 


466 


INDEX 


tual  development  of,  mechan- 
ism, 389  ff. 
Existence,  dependence  of,  upon 
human  effort,  11  fif.     See  Hu- 
man Effort. 


P 


Fabrics,  processes  in  produc- 
tion of,   157. 

Factories,  137,  235.  See  Arti- 
san, Labor,  Employee. 

Family:  condition  of,  under 
modern  civilization,  4f, ;  evo- 
lution of,  34  f . ;  37 ;  in  the 
American  colonies,  53  f . ;  ef- 
fect of,  upon  evolution  of 
artisan,  72  ff . ;  relation  be- 
tween, and  production,  82  f . ; 
effect  of,  demands  upon  rela- 
tivity of  prices,  159  ff.;  ne- 
cessity of  keeping,  accounts, 
265;  457  f. 

Farms:  4;  as  examples  of 
transformation  of  matter 
and  transmutation  of  force, 
24  ff . ;  confusion  of  census 
bureau  as  to  what  constitute, 
25;  124,  125,  202;  value  of, 
in  United  States,  247;  281. 

Farmer,  comparative  control 
of,  over  cosmic  force,  455  f . 
See  Farms. 

Federal  Government.  See  Gov- 
ernment, United  States. 

Fees,  338. 

Flow  of  debits  and  credits, 
130  ff.,  213-231. 

Fluctuation  in  money  and  de- 
mand price,  160  ff.  See  De- 
mand, Wants,  Value,  Money, 
Prices. 

Food:  tribal  attitude  toward, 
34  f.;  a  primal  necessity,  36, 
37;   first  of  utilities,  202  f.; 


prices  of,  governed  by  de- 
mand and  supply,  449  ff. 

Foodstuffs:  hypothetical  devel- 
opment of,  prices,  52-63; 
first  factor  in  evolution  of 
exchange,  64;  87;  effect  of 
manufacturers  on  production 
of,  163  ff. 

Force:  in  relation  to  human 
effort,  6  f. ;  application  of,  to 
substance,  10  f. ;  value  of, 
11-17;  as  property,  20  ff.; 
property  in,  defined,  22  ff. ; 
kinds  of,  26  ff. ;  manifesta- 
tions of,  458  ff.  See  also 
Cosmic  Force. 

Force-unit,  exemplified,   166  ff. 

Force-utility-unit:  defined,  272 
ff. ;  relation  of,  to  want-util- 
ity-unit, 273  ff.;    277. 

Forests,  125,  235. 

Furnaces:  relation  of,  to  in- 
dustrial development,  138. 


a 


Gold:  use  of,  in  exchange,  379; 
Bank  of  England  method  of 
adjustment  of,  flow,  450  f . 

Government:  in  relation  to 
regulation  of  production, 
437  ff.     See  United  States. 

Government  notes,  235. 

Government  regulation  of  utili- 
ties, 439. 

Governmental  grants,  243. 

Great  Britain,  unit  of  exchange 
in,  41. 

Grain,  225. 


Homes:  a  primal  need,  4;  ma- 
terial for,  6;  value  of,  235. 

Horses,  226. 

Houses,  235.  See  Dwellings, 
Homes. 


INDEX 


467 


Human  etFort:  and  human 
wants,  3-17;  application  of, 
5f. ;  cosmic  force  in  relation 
to,  6  f . ;  part  played  by,  in 
combining  substances.  Off.; 
dependence  of  existence  upon, 
llflF. ;  application  of,  to 
property  rights,  19  f.;  rela- 
tion of,  to  exchange,  34  ff. ; 
evolution  of,  as  an  economic 
utility,  72-83;  relation  of,  to 
prices,  51  ff.;  expenditure  of, 
in  making  modern  machines, 
89  f . ;  94 ;  development  of 
coordination  of,  96  flf.,  132; 
relation  of,  to  profits,  131; 
relativity  of,  and  human 
wants,  143-153 ;  interrela- 
tions of,  prices,  and  profit, 
188-212;  expression  of  rela- 
tion between,  and  wants, 
267;  direction  of,  in  relation 
to  propagation,  437. 


Immigration:  eflFect  of,  upon 
commercial  and  industrial 
life  in  United  States,  137. 

Individuals:  in  commerce,  286- 
299. 

Industry:  development  of,  in 
United  States,  136-142;  fun- 
damental factors  of,  144  ff . ; 
effect  of  competition  upon, 
187;  value  of  dollar  in  devel- 
opment of,  375  f.;  evolution 
of  modern,  452  f. 

Instruments  of  production,  235. 
See  Factories,  Machines, 
Warehouses,  Tools. 

Insurance:  mitigating  effect  of, 
223;  as  an  investment,  457  f. 

Intelligence:  in  relation  to  hu- 
man   effort,    5  f . ;    primitive. 


36  f . ;  remedial  effect  of,  222. 
See  also  Mind. 

Interest:  as  a  factor  in  com- 
merce, 134  f.:  basic  principle 
of,  215  f.;  223;  living  upon, 
335-338;   evolution  of.  386  ff. 

Invention ;  relation  between, 
and  industrial  development, 
137  ff. 


Journeyman.  See  Wage-earn- 
ers. 

Judgment:  effect  of  environ- 
ment upon,  3  fT. ;  application 
of,  to  profit,  133  f. 


K 


Kilowatt-hour,  29. 


Labor:  evolution  of  skilled, 
64-83 ;  development  of, 
wages,  77  ff. ;  wages  of 
skilled,  93-113;  unskilled, 
204  f.;  effect  of  World  War 
upon,  225  f.;  distinction  be- 
tween capital  and,  314-318. 

Land:  as  a  source  of  substance, 
84  ff. ;  ratio  of,  to  dollar,  87 ; 
flow  of  value  from,  124  f.; 
determination  of,  value, 
126  .f. ;  causes  of  increase  in 
value  of,  127  ff. ;  elfect  of, 
upon  economic  change,  136; 
235;  utilization  of,  to  meet 
wants,  245  f.  See  also  Real 
Estate. 

Law:  development  of,  of  prop- 
erty, 18. 

Life:  dependence  of  civilized, 
upon  exchange,  34  ff. 

Life  insurance,  as  an  invest- 
ment, 223,  457  f . 


INDEX 


Loan     system:      evolution     of, 

386  ff.' 
London,  420. 

M 

Machinery:  effect  of,  upon  em- 
ployment, 90,  9L 

Machines:  124;  elTect  of,  upon 
prices  and  profit,  114-135; 
in  relation  to  industrial  de- 
velopment in  United  States, 
138  f.;  163,  235.  See  Instru- 
ments of  Production. 

Man  from  Mars:  viewpoint  of, 
3;  fitness  of,  to  judge  of 
earthly  affairs,  4  f . ;  conclu- 
sions of,  11  f. 

Man:  physical  development  of, 
compared  with  mental,  15  f.; 
relation  of  primitive,  to  ex- 
change, 34  f.;  activities  of, 
in  universe,  458  f . 

Man-day:  as  unit  of  industrial 
life,  275  f.;  as  unit  of  exist- 
ence, 277  f. 

Man-hours:  272,  275,  276  f., 
290  ff;  application  of,  302;  in 
relation  to  want-units,  303- 
311;  man-hours  for,  338-345. 

^lanuf acturers :  protective 
measures  of,  450  ff. 

Manufactures :  evolution  of, 
37  f.;  effect  of  recreation 
upon,  162  f. 

Matter:  forms  of,  classified, 
26  ff. 

ilechanics,  22. 

Merchant:  evolution  of  the,  37. 

Merger,  defined,  451. 

Metals:  relation  of,  to  ex- 
change, 385  ff. ;  as  exchange 
medium,  435. 

Mills,  4,  137,  235.  See  also 
Industry. 

Mind:   value  of,  15-17;   primi- 


tive, 36  f . :  sound,  dependent 
upon  sound  body,  437-462. 

Mines,  125,  202. 

"Mixed  trains,"  25. 

Molecules,  268. 

Money:  medium  of  exchange, 
41  ff.;  transmutation  of 
property  into,  44  f . ;  ratio  of 
substance  to,  84  f . ;  ratio  of 
land  to,  unit,  86  f.;  expres- 
sion of  value  in,  131  f.;  result 
of  sale  of  man-hours,  304  ff. ; 
command  of,  over  utilities, 
368;  discussion  of,  377-401; 
uses  of,  in  development  of 
trade,  377  ff.;  relation  be- 
tween, and  exchange,  378  ff.; 
causes  of  desire  for,  379 ;  as 
a  measure  of  value,  379  ff.; 
unit  of  coin,  379  f . ;  ratio  of, 
to  utilities,  380  ff. ;  necessity 
for,  in  conduct  of  business, 
286  f.;  pay  for  use  of,  386; 
lenders,  387;  bank  notes  as, 
387  f.;  government  notes  as, 
388 ;  checks  as,  389  f . ;  scar- 
city of,  394  f . ;  prices  of,  423 ; 
trend  of,  system,  424—435. 
See  Unit  of  Exchange. 

Money-lenders,  387. 

Monopoly,  452. 

Mules,  226. 

Munitions,  production  of,  224. 

Music  boxes,  163. 

Musicians,  214. 

N 

National  welfare:  relation  of 
volume  of  production  to,  436. 

New  England,  9. 

New  Orleans,  9. 

New  York:  9,  420;  measures 
of,  dealers  to  curb  over-pro- 
duction, 460. 

Notes:     42  f.,     435.     See     also 


INDEX 


469 


Promissory       Notes,       Bank 
Notes,  Government  Notes. 


Oils:  157;  cosmic  force  in  re- 
lation to  production  of,  157  f. 

"On  trust,"  defined,  45.  . 

Organizations:  relation  of  pro- 
ducing, to  profit,  132  tf ., 
178  f.;  190;  intricate  func- 
tions of  business,  211  f.; 
240;  sources  of  capital  of, 
264. 

Overproduction :  meaning  of, 
222;  ignorance  at  root  of, 
223  f. 


Packing-houses,  190. 

Paintings,  as  utilities,  129. 

Payment:  significance  of, 
359  flF. ;  deferred,  3.59-364, 
405  ff.;  adjustment  of,  416  fT. 

Peace:  adjustment  of  value  of 
utilities  in  times  of,  447  ff. 

Pearls,  as  utilities,  127. 

Pharaoh,  242. 

Physicians,  214. 

"Plant":  defined,  124;  impor- 
tance of  efficiency  to  profit 
from,  133  ff.;  specialized, 
193. 

Plantations,  124. 

Population:  increase  of,  re- 
sponsible for  evolution  of 
artisan,  64  ff. ;  effect  of,  upon 
demand,  33  ff. ;  82 ;  relation 
of,  to  flow  of  value,  52  ff. ; 
specialization  dependent  up- 
on increase  in,  84-92;  influ- 
ence of  increased,  upon  prices 
and  profit,  93-113;  effect  of 
credit  loss  upon,  440  f . 

Prices:  defined,  38;  relation  of. 


to  human  effort,  51  ff. ;  fac- 
tors that  determine,  52;  ef- 
fect of  supply  and  demand 
upon,  76;  relation  of  wages 
to,  81  f. ;  development  of,  for 
sources  of  substance,  84-87 ; 
dependence  of,  of  land  upon 
substance,  86  f . ;  development 
of,  93-113;  effect  upon,  of 
machines,  114-135;  depend- 
ence of  profit  upon,  131  ff. ; 
dependent  upon  employee, 
135;  relativity  of,  155-174; 
determination  of,  by  interre- 
lation, 170  ff.;  interrelation 
of  effort,  and  profit,  188-212; 
effect  of  World  War  upon, 
224  ff.;  rising  and  falling, 
311-314;  profit  and,  331  ff.; 
fluctuation  of,  388  f . ;  effect 
of  Government  ownership 
upon,  441  ff.;  determination 
of,  452  ff.     See  also  Value. 

Producer:  evolution  of,  64-83; 
in  relation  to  profit,  100- 
113;  adjustment  of  profit 
and  loss  by,  130. 

Production :  development  of, 
37  ff.;  dependence  of,  upon 
profit,  62  f. ;  divisions  of 
functions  of,  64-83;  evolu- 
tion of,  65  ff. ;  instruments 
of,  87-92,  118  ff.;  phases  of, 
129  ff. ;  flow  of  processes  of, 
166  f.;  assumption  of  respon- 
sibility for,  181  f.;  elements 
that  control  duration  of, 
196  f.;  cessation  of,  214;  ef- 
fect of  war  upon,  223  f . ;  ef- 
fect of  war  upon  instruments 
of,  230  f.;  ultimate  units  of, 
and  consumption,  266-284 ; 
primary  function  of,  270;  by 
individuals,  286-299;  by  or- 
ganizations, 299-302 ;  syn- 
thesis of,   352-359;    full   sig- 


470 


INDEX 


nificance  of,  394  f.;  relation 
of,  to  material  welfare,  436; 
of  utilities  ultimate  purpose 
of,  437;  relation  of  Govern- 
ment to,  438;  menace  of  un- 
restricted, 449;  measures  to 
prevent  excessive,  450  f . ; 
460.  See  also  Manufactures, 
Overproduction. 

Profit:  defined,  60  f.;  in  rela- 
tion to  wages,  74  ff. ;  eflfect 
of,  upon  specialization,  81  f.; 
relation  of  instruments  of 
production  to,  91  f.;  factors 
contributing  to,  100-113;  ef- 
fect of  machines  upon,  114- 
135;  expression  of,  129  f.; 
accrument  of,  129  f.;  rela- 
tive, defined,  131;  relativity 
of,  175-187;  interrelation  of 
effort,  prices,  and,  188-212; 
causes  of,  equalization, 
192  f.;  limit  of,  193  ff.;  ef- 
fect of,  restriction,  241;  se- 
curing of,  318-324;  living 
upon,  335-338 ;  effect  of  busi- 
ness depression  upon,  374  f . ; 
relation  volume  of,  to  na- 
tional welfare,  436 ;  effect  of 
Government  ownership  upon, 
441  f.;  effect  of  war  upon, 
444  ff. 

"Profit  and  loss"  account,  259. 

Progress:  result  of  triumph  of 
mind,  16  ff.;  dependence  of, 
upon  debits  and  credits,  231. 

Prohibition :  tendency  of,  of 
utilities,  438. 

Promissory  notes:  409;  dis- 
counting of,  in  payment  for 
utilities,  435.     See  Notes. 

Property:  in  matter  and,  in 
force,  18;  essence  of,  ex- 
plained, 18  f.;  evolution  of 
the  institution  of,  35  ff. ; 
transmutation  of,   into  cred- 


its, 44  f. ;  relation  of,  to  unit 
of  exchange,  45  ff. ;  retention 
of,  92. 

Prosperity:  World  War  in  re- 
lation to  national,  225. 

Purchase:  designation  of,  43  ff. 
See  Transfer. 

Purchaser:  evolution  of  the, 
37  f. 

Purchasing  power.     See  Value. 


R 


Railroad:  effect  of,  upon  indus- 
trial and  commercial  devel- 
opment, 137  f.;  rates,  190; 
235,  260. 

Ranches,  124,  125. 

Real  estate:  determination  of, 
value,  124  ff.;  fluctuation  of, 
value,  127-129.  See  Land, 
Property,  Structures. 

Recreation :  effect  of,  vogues 
upon  manufactures,  162  f. 

Refineries,  157. 

Rents:  215,  323;  as  source  of 
income,  334  f . 

Repairs,  285. 

Retailers:  relation  of,  to  profit, 
130. 

Royal  charters,  243. 

Rugs,  163. 


S 


Sagacity,  244. 

San  Francisco,  10. 

Satisfaction  of  wants,  166. 
See  Demand,  Wants. 

Savings:  215;  effect  of,  upon 
efficiency,  457. 

"Scarcity  of  money,"  explained, 
394  f. 

Self-preservation :  dependence 
of,  upon  exchange,  34  ff. ;  re- 
lation of,  to  economics,  34  ff. 


INDEX 


471 


Self-sufficiency:  state  of,  de- 
fined, 35;  reign  of,  37;  in 
American  colonies,  53;  G4; 
force-unit  in  the  age  of,  166. 

Servants:  efforts  of,  10. 

Shelter,  202.  See  Dwellings, 
Homes,  Houses. 

Silver:  use  of,  in  exchange, 
379. 

Soul:  relation  of  human  effort 
to,  17. 

Sources  of  substance,  84-87. 

Specialization,  81. 

Staples:  profit  on,  129.  See 
Utilities. 

Steam:  effect  of,  application 
on  industrial  development, 
13717.;  introduction  of,  220. 

Steel,  261. 

Stocks:  185  ff.;  value  of,  de- 
pendent upon  rate  of  divi- 
dends, 240  f . ;  variation  in 
value  of,  420. 

Stores,  235. 

Strife.     See  War. 

Structures,  124. 

Substance:  as  product  of  force, 
6  ff. ;  part  played  by  human 
effort  in  combining,  6  ff. ;  ap- 
plication of  force  to,  10  f. ; 
replacement  of,  12  f.;  sources 
of,  84-87;  value  of  source 
of,  334. 

Supply :  early  phases  of,  35  ff. ; 
effect  of,  upon  demand,  76; 
operation  of,  140-142;  rela- 
tion of,  to  demand,  443. 

Surplus,  182. 


Taxation:  effect  of  Government 
ownership  upon,  of  utilities, 
439;  effect  of  war  upon,  of 
utilities,  446. 


Taxes,  as  governmental  credits, 
227  f. 

Texas,  9. 

Theaters,  190. 

Tools:  16;  development  of, 
87  f . ;  supply  and  demand  in 
relation  to,  122  ff.  See  also 
Instruments   of   Production. 

Trade:  evolution  of  interna- 
tional, 141  f.  See  also  Ex- 
change, Commerce. 

Tradesman :    evolution  of,  37  f . 

Tramps,  202. 

Transfer:  relation  of  coin  to, 
42  f . ;  explanation  of  factors 
of,  43  ff. ;  essentials  of,  44  f . ; 
281.  See  also  Exchange, 
Purchase. 

Tribe:  economic  evolution  of, 
35  f.;  37. 

Truck  gardens,  124. 

Trusts,  451. 


U 


Ultimate  units  of  production, 
266-284. 

"Unearned  increment,"  defined, 
127. 

Unit  of  exchange:  34-51;  de- 
signation of,  41 ;  significance 
of,  47  f . ;  shifting  ratio  of, 
48  ff. ;  435.     See  Coin,  Dollar. 

Unit  of  price,  defined,  95. 

Unit  of  time,  271. 

Unit  of  utility,  156  ff. 

Unit  of  value:  ratio  of  utili- 
ties to,  158  f. 

United  States:  8;  unit  of  ex- 
change in,  41;  development 
of  industry  in,  136-141;  ef- 
fect of  immigration  upon 
industrial  life  in,  137;  edu- 
cational system  in,  205; 
debit  and  credit  system  in, 
during    World    War,    224  f.; 


472 


INDEX 


effect  of  World  War  upon 
production  in,  227;  utiliza- 
tion of,  Government  credits 
during  World  War,  227; 
value  of  farms  in,  247;  282; 
characteristics  of  desires  in, 
420  f . ;  regulation  of  price  of 
utilities  by,  440  f . ;  effect  of, 
ownership  upon  profit,  386. 

Utilities:  8ff.;  and  utility,  23- 
33 ;  classification  of,  28  ff. ; 
"final,"  defined,  30;  "inter- 
mediate," defined,  31;  disin- 
tegration of,  32;  relation  of 
price  to,  38  ff. ;  evolution  of, 
as  intermediary  in  exchange, 
41  ff. ;  ratio  of,  to  unit  of 
exchange,  47  f.;  machines  as 
economic,  87 ;  production  of 
final,  130  f.;  ratio  of,  pro- 
duction to  human  effort, 
152  f.;  ratio  of,  to  dollar, 
158  f.;  relative  importance 
of,  159  ff.;  effect  of  World 
War  upon,  225  ff. ;  as  capi- 
tal, 261  f.;  discount  of  notes 
in  relation  to,  435;  purpose 
of  production  of,  337  ff. ; 
regulation  of  production  of, 
437  ff. ;  adjustment  of  values 
of,  during  peace,  447  ff. ; 
menace  of  unrestricted  pro- 
duction of,  449  f . ;  measures 
to  prevent  overproduction  of, 
451;  accumulation  of,  in  re- 
lation to  life  values,  461  f. 

Utility :  defined,  27  f . ;  econo- 
mic, 28. 

Utilization,  defined,  241. 


Value:  designation  of,  11  ff.; 
of  force,  13  ff.,  22 ;  of  mind, 
15-17;  law  of,  18  ff.;  rela- 
tion of,   to   utilities,   34-51; 


development  of,  35  ff. ;  rela- 
tion of  price  to,  38  ff. ;  effect 
of  progress  upon,  40  ff., 
64  ff.;  standard  of,  401,  41; 
ratio  of,  64  ff. ;  relation  be- 
tween, and  efficiency,  93  ff. ; 
influence  of  employer  upon, 
96 ff.,  114  ff.;  effect  of  pro- 
duction upon,  96-113;  effect 
of  machines  upon,  114-135; 
effect  of  supply  and  demand 
upon,  122  ff. ;  flow  of,  from 
land,  124  f.;  deterioration  of 
land,  125;  increase  in  land, 
127  f.;  fluctuation,  159  ff.; 
effect  of,  fluctuation  upon 
credit,  169  f.;  commercial 
significance  of,  232-249;  de- 
fined, 234;  general  signifi- 
cance of,  discussed,  234-251; 
the  attribute  of  utilities, 
236  ff. ;  accumulation  of,  244 ; 
relation  of,  to  human  exist- 
ence, 249-251;  adjustment 
of,  dependent  upon  bookkeep- 
ing, 263-265;  expression  of, 
in  force-utility-units,  274  ff.; 
of  utility  utilized  in  produc- 
tion, 329-334;  money  as  a 
measure  of,  378  ff.  See  also 
Price. 

W 

Wage:  degrees  of,  276. 

Wage-earners :  evolution  of, 
64-83;  114  ff.;  203;  as  em- 
ployers, 210;  effect  of  World 
War  upon,  226.  See  also 
Artisan,  Labor,  Employee. 

Wages:  origin  of,  system, 
64  ff.;  influence  of  profit 
upon,  74  ff.,  95  ff. ;  develop- 
ment of,  system,  77  ff. ;  ef- 
fect upon,  of  specialization, 
81  f.,    103  ff.;    efficiency    and, 


INDEX 


473 


107  ff.;  machinery  in  relation 
to,  114  ff.;  investment  of, 
307  f . ;  effect  of  Government 
ownership  upon,  442  f . ;  rela- 
tion of  supply  and  demand 
to,  443  f . ;  relation  of,  to 
volume  of  production,  447  ff. 

"Want,"  significance  of,  35. 

Want-units:  exemplified,  166; 
relation  of,  to  man-hour, 
303-311. 

Want-utility-units :  explained, 
272  ff.. ;  relation  of,  to  force- 
utility  units,  273  ff. 

Wants:  dependence  of,  upon 
human  effort,  4  ff. ;  relation 
of,  to  prices,  51  ff.;  ratio  of 
human  effort  to,  152  f .  See 
Himian  Effort. 

War:    15;   causes  of  primitive, 


35 ;  relation  of,  to  prosperity  , 
443  ff. 

Warehouses:  purpose  of,  91;  as 
instruments  of  production, 
129. 

Wares :  mediaeval,  37  f .  See 
Utilities. 

Water-power,  235. 

Wheat:  stages  of  transforma- 
tion of,  into  flour,  8  f . 

Wholesale  stores,  91. 

Wisconsin,  9. 

Wool,  225. 

World  War:  220;  effect  of, 
upon  prices  and  production, 
224  ff.;  United  States  and 
the,  226  ff. ;  utilization  of 
government  credits  in  the, 
227. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 

I  111    III    llllll 


371  933 


lii   i: 


'l^iillllllBII 

I,  il  ii!ji|liH!l!lli(i!lii 

'ijllf 

i      I     iJji'  "•'!'!' l"'!i!'ii.„. 
',  .. h' P-HS  ill  '1     Hi 

i'liiijiif  I    i 


I'iiiillili 


